China economy

Moody’s lowers China outlook after Fitch downgrade

PUBLISHED : Tuesday, 16 April, 2013, 1:08pm
UPDATED : Thursday, 29 August, 2013, 4:13am

Moody's Investors Service lowered China's outlook to stable from positive after Fitch Ratings downgraded one of its sovereign ratings of the country last week.

It made the change because the scope and pace of credit-positive structural reforms under the new mainland leadership may not be sufficient over the course of the next 12-18 months to justify a rating upgrade, Moody's said yesterday.

The firm also lowered Hong Kong's outlook to stable in conjunction with the change in that of China.

Moody's affirmed China's government bond rating of Aa3. It also affirmed Hong Kong's government bond rating at Aa1 to reflect a strong and competitive economy, very high government financial strength and considerable resilience to shocks.

However, Moody's said, the risk profile of Hong Kong was adversely affected by its vulnerability to credit shocks that might emanate from the mainland.

A Standard & Poor's spokeswoman said her firm had no adjustments at present to the firm's ratings for China and Hong Kong. Its credit rating for China is AA-minus and for Hong Kong it is AAA, both with a stable outlook.

Fitch Ratings cut its long-term local-currency debt rating of the mainland last week, citing dangers to financial stability.

Raymond Yeung Yue-ting, senior economist at ANZ bank in Hong Kong, said rating agencies were concerned about the shadow banking problem on the mainland.

"Regulators are trying to tackle the problem, but it cannot be solved in a short time," he said.

China's economy is likely to expand 7.5-8 per cent this year and next year and 6-7 per cent annually for the rest of the decade, supported by urbanisation and productivity gains, Moody's said.

At the same time, it said, official figures may not "represent the full extent" of risks from local government financing vehicles, while "elevated growth in credit", increasingly driven by shadow banking, is a risk to the economy.

Yeung expects the funding costs of mainland firms to remain stable after the changes by the rating agencies.

"I think there will be no significant changes to their efforts to seek funding on the onshore and offshore markets," Yeung said, "because the firms that do business with Chinese firms look into the operations of individual companies more than credit ratings."