China more risky, says rating review

PUBLISHED : Monday, 15 May, 1995, 12:00am
UPDATED : Monday, 15 May, 1995, 12:00am

INDIA is a better investment than China, according to the Economist Intelligence Unit (EIU), which says India's vital signs are better and China is hostage to the health of paramount leader Deng Xiaoping.

Ashok Bhatia, the EIU's India analyst, said: 'A brighter macroeconomic outlook and burgeoning foreign exchange reserves have triggered an improvement in India's credit-worthiness, making the country - for the first time - a less risky investment proposition than China.

'Although India's political and policy risk remains high in the run-up to next year's general election, China's credit rating continues to suffer from the political uncertainty arising from the worsening physical condition of Mr Deng.

'India's major economic parameters are more encouraging than they have been for some time, prompting the EIU to upgrade its credit rating accordingly.' The EIU publishes a quarterly risk ratings review ranking 89 countries with grades from A for the lowest risk to E for the highest risk. It also grades short-term trade risk from 0 to 100.

It lifted India's overall risk rating from C to B, and by five points to 40, because of the improved macro-economic outlook and higher foreign exchange reserves.

China's score was unchanged at 45 points and its rating remained at C.

'China's political uncertainty and its accompanying hesitancy over economic policy have been manifest in its failure to take decisive steps to cool inflation, which is running at twice India's rate,' Mr Bhatia said.

'While it is improbable China will split into warring regions or jettison the economic liberalisation programme set in motion by Mr Deng in the late 1970s, it is likely the weak collective leadership will not feel confident to persist with the thorough institutional changes needed to push ahead with economic reform.' According to the latest EIU review, 18 countries registered credit-worthiness improvements, while 10 deteriorated.

Four out of the 17 Asia-Pacific countries covered by the review registered improvements, while Malaysia and Thailand fell.

The Asia Pacific continued to be the best-rated region apart from five Organisation for Economic Co-operation and Development (OECD) countries in southern Europe.

Countries of the former Soviet Union remain the riskiest, with an average risk rating of 76.7.

Moody's Investors Service is also more positive on India, which it upgraded about two months ago, while it left China's A3 rating unchanged last month.

The rating agency lifted India's long-term foreign currency debt rating two notches to Baa3 from Ba2 last December.

It praised the success of India's structural adjustment programme in restoring the economy for higher growth, financed mainly with domestic savings and foreign equity capital.


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