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Phoenix Kwong

China downplayed concerns of a hard landing in its economy after Moody’s downgraded its outlook on the government bond rating.
The move came as China prepared for the annual meetings of its political advisory body and legislature – the “two sessions”.
Wang Guoqing, spokesman for the Chinese People’s Political Consultative Conference which meets today, said China’s 6.9 per cent growth in GDP last year “stood head and shoulders above others” in the world – and indicators at the start of the year showed “warmth” in the economy.
“The overall economic situation is good, therefore there is no problem of a hard landing,” Wang said yesterday.
READ MORE: For China’s struggling economy, 2016 may be worse than 2015
Doubts about China’s economic resilience rose after credit-rating agency Moody’s yesterday downgraded its outlook on the government bond rating from “stable” to “negative”.
Moody’s cited uncertainty over the authorities’ capacity to implement economic reforms, rising government debt and falling foreign reserves as the reasons behind the downgrade.

The agency also warned it could further downgrade China’s rating if it saw a slowing of the reforms needed to support sustainable growth and to protect the government’s balance sheet.
“Without credible and efficient reforms, China’s GDP growth would slow more markedly as a high debt burden ­dampens business investment and demographics turn increasingly unfavourable,” Moody’s said. “Government debt would increase more sharply than we currently expect.”
China’s economy and its financial stability are becoming an increasing concern to the rest of the world following turbulence in the yuan exchange rate, a recent stock market rout and the slowdown in GDP growth to a 25-year low of 6.9 per cent last year.
A continuing fall in foreign exchange reserves of US$762 billion over the past 18 months, caused by capital outflows, highlighted policy, currency and growth risks, Moody’s said.
The agency questioned the ability of the government to implement economic reforms.
“China’s institutions are being tested by the challenges stemming from the multiple policy objectives of maintaining economic growth, implementing reform, and mitigating market volatility,” Moody’s said.
Policymakers’ credibility was at risk of being undermined by incomplete implementation or partial reversals of some reforms.
“Interventions in the equity and foreign exchange markets over the past year suggest that ensuring financial and economic stability is also an objective, but there is considerable uncertainty about policy priorities,” Moody’s said.
Yet the agency retained the Aa3 rating on government bonds, noting that the country’s sizeable reserves gave it more time to implement reforms and gradually address economic imbalances.
State news agency Xinhua called the decision a “misreading”. It was the “habitual” bearish view of “some Western institutions” on the Chinese economy, which did not evaluate China’s fiscal prudence “in a dynamic and developmental way”.
READ MORE: Why stalled reforms are a bigger worry for China’s economy than a hard landing
The CPPCC’s Wang said conditions to support sustainable growth in China had not changed.
“Though it is facing difficulties now, we will keep medium- to high-speed growth,” he said.
Meanwhile, the think tank Caixin Insight Group-CEBM launched its New Economy Index to better track the overall Chinese economy during its restructuring.
It covers nine categories with 111 sectors, such as advanced information technology, environment, new energy, new materials, hi-tech services and research.
The index, undergoing a soft launch, stood at 31.8 in February –measuring the share of the new economy in overall GDP. It was 26.3 in January. The rise was driven by spending on technology, research and development, said CEBM’s Shen Minggao.
“It is more important to check fiscal revenue and corporate profits rather than being obsessed with GDP growth pace,” said Fan Jianping, chief economist at the State Information Centre, a government think tank.
Nathan Chow Hung-lai, senior vice-president at DBS Bank, said the drivers of the negative outlook addressed by Moody’s were recognised by the market. “However, investors are unclear what measures government will launch to stabilise growth,” he said. Slowing growth and the government’s bid to eliminate overcapacity would continue to add pressure to China’s debt burden, he added.
READ MORE: For China’s struggling economy, 2016 may be worse than 2015



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State media says credit-rating agency ‘misread’ situation and offers another ‘habitual’ bearish ‘Western’ view that fails to evaluate nation’s fiscal prudence
