Hong Kong yesterday hit back at a decision by Moody’s Investors Service to cut its credit rating on the territory, which the agency said was becoming increasingly close to mainland China.
The move was announced hours after the firm downgraded China for the first time in almost three decades, citing concerns about its ballooning debt and slowing economic growth.
Moody’s decision came as China tries to clean up a toxic brew of unregulated and risky lending that for years has fueled the economy’s spectacular growth, although some analysts doubt Beijing’s willingness to quit its debt addiction.
Photo: AP
Beijing rejected the cut, saying Moody’s had used an “inappropriate” method to assess the risks facing the economy.
In downgrading Hong Kong, the agency outlined the growing links between the territory and the mainland, with banks increasing China-related lending, while its stock market is also linked to bourses in Shanghai and Shenzhen through separate tie-ups.
Hong Kong’s involvement in China’s Belt and Road initiative also brings its economy and financial systems closer to the mainland, Moody’s said.
“The downgrade in Hong Kong’s rating reflects Moody’s view that credit trends in China will continue to have a significant impact on Hong Kong’s credit profile due to close and tightening economic, financial and political linkages with the mainland,” it said in a statement.
“The institutional features which grant Hong Kong, at present, a degree of political and economic independence — together with the SAR’s [special administrative region’s] intrinsic credit strengths — allow Hong Kong’s rating to exceed that of China. But the two ratings, like the two regions, remain closely linked,” it said.
Moody’s cut Hong Kong from “Aa1” to “Aa2”, but upped its outlook from negative to stable.
Earlier, the agency had downgraded China to “A1” from “Aa3 — its first since 1989 months after the Tiananmen Square Massacre — and also increased its outlook to stable from negative.
It affirmed the “Aa3” rating of Macau and upgraded its outlook to stable from negative.
Hong Kong Financial Secretary Paul Chan (陳茂波) said he “strongly disagreed” with the move.
“We are of the view that Moody’s has overlooked the sound economic fundamentals, robust financial regulatory regime, resilient banking sector and strong fiscal position that Hong Kong has,” Chan said.
He also said the Belt and Road initiative would help Hong Kong businesses enter new markets, boosting the territory’s economy, adding that China is a “key source of growth” for the global economy.
Huarong International Securities (華融國際金融) analyst Jackson Wong (黃志陽) said that he did not see the downgrade as necessary, adding that it would have little impact on Hong Kong.
“I don’t think it will affect investors’ view on Hong Kong, because they believe Hong Kong has a strong financial system,” Wong said. “As of now the city, in every aspect, is still very strong and I don’t see any deterioration.”
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