China: S&P Downgrades Debt Rating, Citing Financial Risks

China: S&P Downgrades Debt Rating, Citing Financial Risks

China: S&P Downgrades Debt Rating, Citing Financial Risks

Global credit rating agency Standard and Poor's (S&P) downgraded China's sovereign credit ratings one step with stable outlook on Thursday.

Standard & Poor's slashed China's credit rating on Thursday over warnings that its ballooning debt had raised "economic and financial risks", marking the country's second downgrade this year.

China's debt binge has unsettled one of the world's top credit ratings agencies.

China is the world's second-largest economy behind the USA, and the S&P downgrade from "AA-" to "A+" is in line with similar downgrades by both Fitch and Moody's earlier this year.

It was the country's first ratings downgrade in 26 years.

"Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent", the agency added. Fitch Ratings lowered China's rating in 2013, while Moody's Investors Service did so just last May.

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S&P pointed to the "prolonged period of strong credit growth" raising the prospect of economic and financial risks to the country.

"The recent intensification of government efforts to rein in corporate leverage could stabilise the trend of financial risk in the medium term", S&P said.

S&P said the stable outlook reflects its view that China will maintain robust economic performance and improved fiscal performance in the next three to four years. In any case, the bulk of China's government debt is bought by state-owned banks and held to maturity, the economist noted.

The agency forecast China's economic growth to remain strong at close to 5.8% or more annually through at least 2020.

The timing of S&P's announcement "is awkward for China's leaders, immediately ahead of next month's Party Congress", Williams said.

Moody's cited the slow pace of economic reform in China and said excess credit had imperilled the financial system. "While China's credit growth continues to outpace nominal GDP growth, the gap has actually narrowed this year".

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