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.
- 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