The international rating agencies S&P Global has downgraded China’s sovereign credit rating, citing the country’s growing debt risks….
The international rating agencies S&P Global has downgraded China’s sovereign credit rating, citing the country’s growing debt risks.
China’s finance ministry said on Friday the move was the wrong decision and that the rating agency had ignored the country’s sound economic fundamentals and development potential.
Another ratings agency, Moody’s, downgraded its crediting rating for China in May, also citing concerns about growth and levels of debt.
So what will be the impact of the latest downgrade?
1. Government narrative questioned
A sovereign credit rating downgrade is a small public relations crisis for the Chinese government. Beijing is sparing no efforts to try to convince domestic and overseas audiences that the Chinese economy is doing fine and what problems exist are being dealt with properly.
The downgrades by S&P and Moody’s cast doubts on Beijing’s rhetoric.
2. Higher lending costs
There is no concrete data to show the financial cost of any downgrade on Chinese government bond issuance abroad. China’s finance ministry plans to sell 14 billion yuan (US$2.1 billion) in yuan denominated bonds and US$2 billion in dollar denominated bonds overseas this year, and the Chinese government could be forced to pay more if investors factor in the downgrades and demand higher interest rates.
‘Wrong decision’ in downgrading China’s credit rating, finance ministry says
A sovereign ratings downgrade could also translate into higher financing costs for a group of Chinese state-backed enterprises and institutions when borrowing abroad.
