S&P cuts China's credit rating, citing increasing economic, financial risks

China's stock markets were already closed Thursday when the downgrade was published, and there was little reaction from the yuan.
China's stock markets were already closed Thursday when the downgrade was published, and there was little reaction from the yuan. PHOTO: REUTERS

BEIJING (REUTERS) - S&P Global Ratings downgraded China's long-term sovereign credit rating by one notch on Thursday (Sept 21) to A+ from AA-, citing increasing risks from the country's rapid build-up of credit.

"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, adding that the ratings outlook was stable.

S&P's downgrade follows a similar demotion by Moody's Investors Service in May and comes as the government grapples with the challenges of containing financial risks stemming from years of credit-fuelled stimulus spurred by the need to meet official growth targets.

It also comes less than a month ahead of a highly sensitive twice-a-decade Communist Party Congress which will see a key leadership reshuffle.

Concerns about China's sustained strong credit growth appear to be increasing, even as first-half economic growth beat expectations.

China's stock markets were already closed Thursday when the downgrade was published, and there was little reaction from the yuan.

S&P said that recent efforts by the government to reduce corporate leverage could stabilise financial risks in the medium-term. "However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually," S&P said.

S&P also lowered China's short-term rating to A-1 from A-1+.