Moody's credit rating service has downgraded China's rating by one notch to A1. The company claimed that although structural reforms will slow the build-up of debt it will not stop debt growth.
|Unless China is able to get its growing deficit in check it could it could see another credit downgrade in the future. The company predicted that the financial strength of China will be eroded in coming years as growth slows while debt increases. However, at the same time as it announced the downgrade Moody's changed the outlook on China from negative to stable indicating that it is unlikely to change the rating for some time.|
"If in the future China's structural reforms can prevent its leverage from rising more effectively without increasing risks in the banking and shadow banking sector, then it will have a positive impact on China's rating.If there are signs that China's debt will keep rising and the rate of growth is beyond our expectations, leading to serious capital misallocation, then it will continue to weigh on economic growth in the medium term and impact the sovereign rating negatively. China may no longer suit the requirement of A1 rating."Moody's expects GDP growth in China to be around 5 percent in coming years, down from 6.7 percent last year making it even more difficult to reduce debt.
Indeed, for the growing sleuth of China bears out there, mooching around on the margins of the business pages and the less visited corners of the Internet, China's economy is metaphorically somewhere between a runaway train and the creaking timbers of a viaduct called "Cassandra's Crossing". Moody's has just, tentatively, hesitatingly, "inappropriately" even, suggested that the old, blind, Greek woman may be onto somethin