Standard & Poor’s Cuts China, Hong Kong Sovereign Credit Outlook To Negative From Stable
China and Hong Kong ratings at AA- and AAA respectively
PUBLISHED : Thursday, 31 March, 2016, 5:36pm
UPDATED : Friday, 01 April, 2016, 3:50am
Standard & Poor’s on Thursday became the second international rating agency to revise China’s credit rating outlook to “negative”, warning it might downgrade the country’s overall rating “this year or next”.
Beijing responded angrily to a similar move by Moody’s last month by saying it did not “care” about the assessments of rating agencies.
Standard & Poor’s said in a statement that it revised the credit outlook because “China’s economic rebalancing is likely to proceed more slowly than we had expected”.
That rebalancing added economic and financial risks to Beijing’s creditworthiness, the statement said.
The agency also adjusted Hong Kong’s credit outlook to “negative” from “stable”, just as Moody’s did in mid-March.
Hong Kong Financial Secretary John Tsang Chun-wah blasted Moody’s at the time, saying it was mistaken in interpreting “close links with China” as a risk.
The Standard & Poor’s revision comes as the central government is trying desperately to bolster confidence in the country’s economic and financial prospects amid excess industrial capacity and rising corporate borrowings.
When Moody’s changed China’s credit outlook in early March, days before the annual session of the National People’s Congress, it sparked angry remarks from mainland cadres and official media outlets.
At the annual China Development Forum, Finance Minister Lou Jiwei (樓繼偉) said China “didn’t care about” such ratings because the Moody’s revision did not affect the market, including the offshore yuan exchange rate.
Lou also sought to discredit ratings by international agencies in general.
“When Greece was in huge trouble, its rating then was still higher than China’s,” Lou said.
A downgrade, or a warning of a downgrade, could make it much more expensive for the central government, or a China-backed entity, to borrow money from international creditors.
According to Standard & Poor’s, if China continues to expand credit at a faster rate than nominal economic growth and to drive up the share of investment in overall GDP, it “may weaken the Chinese economy’s resilience to shocks, limit the government’s policy options, and increase the likelihood of a sharper decline in the trend growth rate”.