Moody's Investors Service downgraded China's credit ratings Wednesday for the first time in almost 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.
For the first time since 1989, Moody's rating agency has cut its view of the creditworthiness of China as it forecasts the country's battle to control debt and stimulate economic growth will get harder.
By downgrading China's credit rating, Moody's said China's debt is likely to grow substantially, while its economy slows down.
The ministry also refuted Moody's expectation that China's government debt-to-GDP ratio would rise to 40 percent in 2018.
China's economy has for always been fuelled by economic stimulus and cheap credit and the government thereis now grappling with ways to steer the economy clear of a debt crisis as growth slows. China's total outstanding credit was worth an alarming 260% of its GDP previous year, up from 160% in 2008, according to Bloomberg.
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Communist leaders have cited reducing financial risk as a priority this year.
The latter aim, backed by global institutions as necessary, has seen growth drop from a peak of 10.6% in 2010 to 6.7% last year - a trend expected to continue, with Moody's predicting a gradual cooling down of close to 5% over the next five years.
Moody's downgrades China's rating for first time since 1989One of the world's biggest credit rating agencies, Moody's Investors Service, has downgraded China.
In February this year, state-run Xinhua news agency has quoted China Banking Association as saying that the country s bad loans totalled to a whopping Dollars 220 billion last year.
Echoing the ministry, the National Development and Reform Commission (NDRC), China's top economic planner, said Wednesday that deleveraging, as a major task of the country's supply-side structural reform, was making progress and China's debt risks were controllable.
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"The planned reform program is likely to slow, but not prevent, the rise in leverage".
"Taken together, we expect direct government, indirect and economy-wide debt to continue to rise, signalling an erosion of China's credit profile which is best reflected now in an A1 rating". Fitch though has maintained its A plus ratings with stable outlook since 2007.
The downgrade will have an impact on the cost of borrowing for China's government and its SOEs. "But S&P now rates China one notch above Moody's and Fitch, so a cut would not break new ground".
Over the same period, Chinese economic growth fell from 14.2 percent to 6.7 percent in 2016, though that still was among the world's strongest.
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