Moody’s Downgrade of China’s Credit Rating

Moody’s Downgrade of China Ratings Draws Distrust, Faces Test

(Xinhua News Agency, May 24, 2017. Complete text:) Beijing - The decision of Moody’s to downgrade China’s credit ratings has stirred distrust of its authority and will face a severe test as the world is counting and betting on the second largest economy to continue driving global growth.

In a statement released Wednesday [May 24], the rating agency said it had downgraded China’s long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative.

It attributed the move to expectations that China’s economy-wide leverage would increase over the coming years, planned reform program would likely slow, but not prevent the rise in leverage, and sustained policy stimulus would cause rising debt.

Upon release, however, the downgrade was cast into doubt.

"The economy is likely to slow but the forecast of Moody’s is too pessimistic," said Zhao Quanhou, a senior research fellow of the Chinese Academy of Fiscal Science, adding that the rating agency had, to some extent, lost its objectivity.

Echoing Zhao’s remarks, Sun Binbin, chief analyst with TF Securities, believes the downgrade reflected that Moody’s "does not quite understand China’s development pattern and path" and expects limited impact on the economy as the fundamentals are stable.

Doubts from economists are reasonable as the Chinese economy roared back strongly in the beginning of 2017, with substantial rebounds in nearly all indicators.

Gross domestic product grew 6.9% in the first quarter, above the full-year target of 6.5% and the 6.8% growth in the fourth quarter of 2016. For the first four months, the fiscal revenue, a gauge of the government’s ability in macroeconomic regulation, jumped 11.8%, compared to 8.6% for the same period last year.

Although the momentum has been somewhat weakening since April, ...

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