International credit insurance and management services group Coface yesterday announced upgrades of country ratings for Taiwan and Hong Kong from A2 to A1.
“A1” means “the political and economic situation is very good, as is the business environment. This has a positive influence on corporate payment behavior. Average corporate default probability is very low,” Coface said.
Thanks to economic policies and gradual revival of growth in China and the US, Taiwan’s economy recovered in the first and second quarters, with 13.7 -percent and 12.5 percent year-on-year growth respectively.
Moreover, progress was also made on financial cooperation as attested by the opening of the Taiwan Stock Exchange to investors from China, the possibility of banks from either side of the Taiwan Strait opening branches in the other’s territory and the possibility of China opening Chinese yuan accounts in Taiwan, Coface said in a statement.
“This trend is expected to -continue in 2010 to 2011 with the Economic Cooperation Framework Agreement [ECFA] coming into in effect in September,” Coface’s Greater China managing director Richard Burton said.
In Hong Kong, there are recent signs of sustained economic -progress, including the strong resilience of Hong Kong exports. For the first eight months, the value of total exports of goods rose by 26.4 percent over the same period last year.
Hong Kong also saw a drop in its unemployment rate to 4.2 percent from June to August — marking the lowest level in the territory since November 2008, the report said.
“Hong Kong’s current account surplus is expected to grow slightly this year as a result of a recovery in the export of services, including tourism, financial services, merchandising and logistics. The -reserves will therefore remain at a healthy level,” Burton said.
“In addition to the favorable economic atmosphere, the improving payment situation of companies and the politically stable situation in Hong Kong, all make the above a positive view and we therefore upgrade Hong Kong to A1,” he said.
Coface, meanwhile, maintained China’s A3 rating.
“A3” means “changes in a generally good, but somewhat volatile political and economic environment can affect corporate payment behavior. The business environment has some shortcomings, but average corporate default probability remains at a quite -acceptable level.”
Although China recorded GDP growth of 10.3 percent in the second quarter and more solid growth is expected, the risk of corporate defaults remains notably high in some sectors, particularly low value-added industries such as textiles, shoes and toys. Other problem areas include those with excess capacity, such as automobiles, construction and steel, the report said.
“Moreover, the debt of some local governments has increased significantly since last year due to the implementation of economic recovery measures and may generate a growing default risk,” the report said.
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