Standard & Poor’s has cut its rating on China by one notch weeks before the country is expected to launch a rare dollar bond, with the ratings agency citing rising economic and financial risks after a long period of heavy credit growth.
The rating now stands at A+ from AA-, according to S&P’s website. S&P said:
"The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks. Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent."
S&P noted that “the recent intensification of government efforts to rein in corporate leverage could stabilise the trend of financial risk in the medium term.” But it cautions that it “foresee[s] that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.”
After that, China’s finance ministry said on Friday S&P Global Ratings’ decision to downgrade the country’s sovereign credit rating was “a wrong decision” that neglects the economic fundamentals and development potentials of the world’s second-largest economy.