Home GRASP GRASP/China S&P Downgrades China’s Debt, Citing a Surge in Lending

S&P Downgrades China’s Debt, Citing a Surge in Lending


The firm’s move, spurred by a borrowing spree that it said threatens the world’s No. 2 economy, comes just before a sensitive Communist Party meeting.
SHANGHAI — Standard & Poor’s cut its rating of China’s sovereign debt by a notch on Thursday and added its voice to the growing chorus of critics who contend that the country is maintaining fairly high economic growth only by allowing debt to rise.
State-controlled banks have been funneling big loans to chronically money-losing state-owned enterprises, allowing these enterprises to avoid layoffs. Indebted local governments have been borrowing heavily as well, partly from banks but increasingly by issuing bonds. Even China’s national government, fairly cautious in its previous borrowing, has been running budget deficits lately, while the country’s famously frugal households have begun using more credit as well.
“The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks,” S&P said in a statement.

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