S&P downgrades China's credit ratings

S&P downgrades China's credit ratings

S&P downgrades China's credit ratings

Tao Wang, China chief economist at Swiss bank UBS, said: "We think China's debt risk has actually declined over the past year".

"The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China's economic and financial risks", the credit ratings agency said in a statement on Thursday. This is the second downgrade from a major ratings agency for Beijing this year and comes at an awkward time before next month's Communist party congress.

Influential economists and agencies have been queuing up in recent months to warn the rise in debt is unsustainable, with the International Monetary Fund and the Bank for International Settlements among the most prominent voices.

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

Furthermore, over the medium-term Beijing's recently intensified efforts to stop excessive leverage might succeed in "stabilising" the trend in financial risk.

S&P also lowered China's short-term rating to A-1 from A-1+.

However, it warned that another downgrade "could ensue if we see a higher likelihood that China will ease its efforts to stem growing financial risk and allow credit growth to accelerate to support economic growth".

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.

S&P Global Ratings downgraded China's long-term sovereign credit rating earlier today. "All that is an argument to say China's rating might still be too good".

Despite the debt concerns, S&P said it doesn't expect to cut China's rating further anytime soon, predicting the country "will maintain robust economic performance over the next three to four years".

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