Country\u2019s credit rating dips on slowing growth and mounting debt, Beijing says downgrade overestimates risks<\/b>
\nMoody\u2019s Investors Service downgraded China\u2019s credit rating Wednesday – from Aa3 (Double A-3) to A1 \u2013 saying it expects China\u2019s economy to erode in coming years as growth slows and its debt burden continues to rise. The downgrade comes as the government faces new financial challenges after years of credit-fueled stimulus.
Craig Erlam, senior market analyst at foreign exchange firm Oanda, said the credit downgrade comes as no surprise. \u201cBecause talk of Chinese debt and concerns about the size of Chinese debt has been going on for the last few years. They seem to be very reliant on these high levels of growth, which has been slowing, \u201d according to Erlam.
China’s economy, the second largest in the world, grew 6.7 percent in 2016, down from 6.9 percent the previous year, the slowest pace since 1990. Erlam says the next few years could be challenging.
\u201cThey’ve [the Chinese government] talked about wanting to move away from an investment and export-led economy and focus more on domestic consumption and look at a more sustainable model. But, as we’ve seen over the last couple of years, as soon as it runs into any difficulties – it seems to revert back to where it was a couple of years ago and start spending more money on infrastructure.\u201d
Moody\u2019s expects the government\u2019s direct debt burden to rise to 40 percent of GDP by 2018 and closer to 45 percent by the end of the decade. That\u2019s still well below the 60 percent debt to GDP warning line for the European Union.
China\u2019s Finance Ministry said the downgrade overestimates the risks of rising debt and claims it was based on \u201cinappropriate methodology.\u201d The downgrade is likely to increase the cost of borrowing, but analysts say the one-notch downgrade remains comfortably within the investment grade rating range.
Triple A is the highest rating for creditworthiness, followed by Double A, then Single A. C represents the weakest creditworthiness and means default is imminent.
China\u2019s Shanghai Composite Index fell more than 1 percent after the credit downgrade while the value of the yuan slipped briefly 0.1 percent against the U. S. dollar.<\/p>\n