S&P Revises China’s Credit Outlook To Negative On Growth, Debt Concerns

Following China’s legislative meetings in March 2016, Standard & Poor’s Ratings Services believe the country’s reform agenda is on track.

However, S&P are revising the rating outlook on China to negative from stable because economic rebalancing is likely to proceed more slowly than they had expected.

Highlights:

  • The economic and financial risks to the Chinese government’s creditworthiness are gradually increasing and could lead to a downgrade this year or next
  • Forecasts China’s economic growth over next 3 years will remain at or above 6% annually, but government and corporate leverage ratios are likely to deteriorate, and the investment rate could be well above what S&P calculates to be sustainable levels of 30%-35% of GDP
  • These trends could weaken the Chinese economy’s resilience to shocks, limit the government’s policy options, and increase the likelihood of a sharper decline in trend growth rate
  • May downgrade if China looks to be increasing credit at a significantly faster rate than the nominal GDP growth in a bid to stabilize growth at or above 6.5%, such that the investment ratio is above 40%
  • China’s monetary policy is largely credible and effective, as demonstrated by its track record of low inflation and its pursuit of financial sector reform
  • The nation’s credit rating is AA- with a negative outlook, S&P said in a statement
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