(Yicai Global) May 24 – Saying rising debt would erode China's credit metrics, with robust growth increasingly reliant on policy stimulus, Moody's Investors Service had downgraded China's long-term local currency and foreign currency issuer ratings to A1 from Aa3, and changed the outlook to stable from negative, the rating agency said on its website today.
Moody's has also downgraded the senior unsecured foreign currency shelf rating to (P)A1 from (P)Aa3. China's local currency bond and deposit ceilings remained at Aa3. The foreign currency deposit ceiling was lowered to A1 from Aa3, while China's short-term foreign currency bond and bank deposit ceilings remained at Prime-1 (P-1). The foreign currency bond ceiling remains at Aa3, said the rating agency.
Moody's expects the planned reform program is likely to slow economic growth, but not prevent the rise in leverage, adding that the economy-wide leverage in China would further increase over the coming years.
The importance the authorities attach to maintaining robust growth would result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets, Moody's noted Such stimulus will contribute to rising debt across the economy as a whole, it claimed.