Moody's downgrades China's credit rating from Aa3 to A1

Downgraded to A1Downgrading long-term local and foreign currency issuer ratings by one notch to A1, Moody's Investors Services expressed fears that China's financial strength would weaken amid slowing growth and rising debt.

"These viewpoints, to some extent, overestimate the difficulties facing the Chinese economy and underestimate the capabilities of China to deepen supply-side structural reform and expand overall demand", the MOF said.

China's potential economic growth was likely to slow toward 5 percent in coming years, but the cooldown is likely to be gradual due to further doses of fiscal stimulus, Moody's said.

Moody's also claimed that increases in China's local government financing platforms and debt owed by SOEs would lead to rising government contingent liabilities.

The city's involvement in China's Belt and Road initiative also brings its economy and financial systems closer to the mainland, Moody's said.

But the country's economy has picked up since the second half of 2016, with its GDP growth reaching 6.9 per cent in the first quarter of this year.

China's total outstanding credit climbed to about 260% of GDP by the end of 2016, up from 160 per cent in 2008, according to Bloomberg Intelligence.

The stable outlook reflects Moody's assessment that, at the A1 rating level, risks are balanced.

More news: Celtic beat Aberdeen to win Scottish Cup and complete domestic treble

China's growth previous year, down from 6.9 per cent in 2015 - the slowest growth since 1990. The last time Moody's downgraded China was in November 1989, a few months after a bloody Tiananmen Square protest crackdown.

In February this year, state-run Xinhua news agency has quoted China Banking Association as saying that the country s bad loans totalled to a whopping Dollars 220 billion last year.

The state planner, the National Development and Reform Commission, added in a statement that China's debt risks are generally controllable as measures to lower corporate leverage have achieved initial results, and systemic risks from debt are relatively low.

"The planned reform program is likely to slow, but not prevent, the rise in leverage", Moody's said.

However, Liao said the move "makes no sense", because China's growth has improved from past year and the threat of trade protectionism from US President Donald Trump's administration has subsided. By 8.15 a.m. BST (3.15 a.m. ET) all of Europe's major bourses are lower, although losses are broadly limited.

The downgrading of the China's credit rating has anxious the metal investors globally and domestically.

"The institutional features which grant Hong Kong, at present, a degree of political and economic independence together with the SAR's (Special Administrative Region) intrinsic credit strengths, allow Hong Kong's rating to exceed that of China".

Related news