Experts slam Moody’s China outlook
Print Edition
CHINA’S economists yesterday slammed Moody’s downgrade of sovereign rating outlook, insisting that China’s economic growth remained stable while there were signs of easing of debt pressure.
Moody’s Investors Service downgraded the outlook of China’s credit rating to “negative” from “stable” because of weakening fiscal power, decline in foreign exchange reserve and insufficient reforms.
“Without credible and efficient reforms, China’s GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavorable,” Moody’s said in a statement. “Government debt would increase more sharply than we currently expect. These developments would likely fuel further capital outflows.”
Lian Ping, chief economist at the Bank of Communications, said Moody’s has misjudged China’s economic situation. He said China’s economic growth of about 6.5 percent is still robust and the debts of the central government are low enough to counter potential risks.
He also said China’s foreign exchange reserves remain the largest in the world despite the recent decline.
“The overall risks of China is manageable, and the government has large space for macro-economic adjustment,” Lian said. “China’s economic growth is sustainable in a long time, and the short-term volatility is not enough to change the country’s credit conditions.”
The agency has kept China’s sovereign rating at Aa3, the fourth-highest rating in the system. Comparatively, Fitch put China at A+, the fifth rank, and Standard & Poor ranks China at AA-, equivalent to Moody’s Aa3.
China’s foreign exchange reserves shrank US$762 billion over the last 18 months to US$3.23 trillion as a weakening yuan led to capital outflow.
Moody’s said forex reserves remained sizeable and could support China’s rating at Aa3, giving the authorities time to implement reforms and gradually address imbalances in the economy.
A Xinhua news agency commentary yesterday cited various economists as saying Moody’s review was incomplete and had underestimated the financial stability of the Chinese government.
Wang Tao, chief economist at UBS, said China will be able to support growth through expansionary fiscal polices, while Wu Qing, a researcher with the State Council, said Moody’s has neglected the huge assets of the Chinese government to support its liabilities.
“Credibility of Western rating agencies have been questionable for a long time, and its authority and significance has been declining” since global financial crisis in 2008, the Xinhua commentary said.
Fitch said it was looking to the forthcoming National People’s Congress for more information that could impact China’s sovereign rating.
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