S&P downgrades China's credit rating over debt fears

A Chinese man holds his smartphone as he monitors stock prices at a brokerage house in Beijing

A Chinese man holds his smartphone as he monitors stock prices at a brokerage house in Beijing

"We expect China's economic growth to remain strong at close to 5.8 per cent or more annually through at least 2020, corresponding to per capita real GDP growth of above 5.4 per cent each year".

The Chinese yuan was weaker against the US dollar, but the decision had little market impact; the iShares China Large-Cap exchange-traded fund (FXI) was up 0.6% in pre-market trading, while the Guggenheim China Technology ETF (CQQQ) moved fractionally lower overnight.

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

Claire Dissaux, head of global economics and strategy at Millennium Global Investments in London, told Reuters the debt problem in the country was enormous: "China's credit problem is the biggest problem we have ever seen in any country and probably justifies a lower rating".

In the medium term, the recent intensification of government efforts to rein in corporate leverage could stabilize the trend of financial risk, the agency added.

PM Abbasi to address UNGA after Trump, BRICS statements
While talking about Pakistan-United States deteriorating relations, Abbasi said that relations between Pakistan and USA span for 70 years.

S&P's move puts its rating for China on a par with the two other major credit rating agencies, Moody's and Fitch.

The International Monetary Fund has warned of the dangers from China's credit-fuelled economic strategy, which it warned might risk financial turmoil. "However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually", the agency said in a statement.

S&P moved China to negative outlook in March 2016.

The IMF expects China's total non-financial sector debt as a proportion of gross domestic product to rise to nearly 300% by 2022, up from 242% a year ago. "All that is an argument to say China's rating might still be too good".

The stable outlook on ratings reflects the assessment that China will maintain its strong economic showing and improved fiscal performance over the coming three to four years.

Recommended News

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.