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News~ China's credit downgrade could 'reawaken risk'

2017-06-09 00:09 [BANK] Source:Netword
Guide:"Moody's expects that economy-wide leverage will increase further over the coming years", the ratings agency said. Moody's Investors Services downgraded China's long-term local and foreign currency issuer ratings before China's markets st

"Moody's expects that economy-wide leverage will increase further over the coming years", the ratings agency said.

Moody's Investors Services downgraded China's long-term local and foreign currency issuer ratings before China's markets started trading on Wednesday, citing expectations that the country's Financial strength would erode in coming years.

Moody's downgraded China's credit ratings on Wednesday for the first time in almost 30 years, saying it expects the Financial strength of the economy will erode in coming years as growth slows and debt continues to rise.

China grew 6.7 per cent previous year down from 6.9 per cent in 2015 - the slowest growth since 1990.

Leaders in China have identified containing Financial risks and its asset bubbles their top priority in 2017.

Moody's, however, changed its outlook for Hong Kong to stable from negative, saying the government's vast cash pile can help the territory ward off Financial and economic shocks.

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According to the National Statistics Bureau, as of 2016, China had a total of 27.33 trillion yuan ($4 trillion) of government debt with the GDP totaling 74.41 trillion yuan.

"The combination of slower growth and higher debt poses some contingent liabilities for the government", said Diron.

China's benchmark Shanghai Composite Index fell as much as 1.3.% immediately following the downgrade, but pared the decline to end the session little changed at 3,064.08 points, putting the benchmark down just under 1.3% for the year-to-date.

Chinese growth was officially the weakest seen for 26 years, but still came in at a dizzying 6.7%.

"The Moody's downgrade is based on an inappropriate method ..."

The sovereign downgrade brought Moody's into line with Fitch's rating; Standard & Poor's rates China one notch above its two rival agencies.

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Government stimulus has been a key driver of growth in recent years, but it has also led to a sharp rise in credit and debt levels.

The downgrade adds to concerns over China's reliance on credit to propel growth since the 2008 global crisis.

China now has the same credit rating as Japan, Saudi Arabia and Israel.

"Moody's China action may trigger credit downgrades on Chinese companies, especially state-owned enterprises, raising financing costs and hurting share prices", said Kenny Wen, a strategist at Sun Hung Kai financial Ltd.in Hong Kong.

Moody's has warned China for its slowing economy and rising debt.

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