Standard & Poor’s slashed China’s credit rating today, warning that a prolonged period of debt growth had raised “economic and financial risks”. S&P, which downgraded China’s debt from AA-minus to A- plus, is the second major credit ratings agency to slash the Asian giant’s rating after Moody’s made the same decision in May.
“The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks,” New York-based S&P said in a statement.
While the credit growth has fuelled China’s economic expansion and high asset prices, “we believe it has also diminished financial stability to some extent”, the agency said. Debt-fuelled investment in infrastructure and real estate has underpinned China’s growth for years, but Beijing has launched a crackdown amid fears of a potential financial crisis. “The recent intensification of government efforts to rein in corporate leverage could stabilise the trend of financial risk in the medium term,” S&P said.
“However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.”
When Moody’s downgraded China in May, it was the first time in almost three decades that the country’s credit rating was cut. But another major credit ratings agency, Fitch, maintained its A-plus score for China in July.
China posted better-than-expected second quarter growth as the economy expanded by 6.9 per cent, but analysts have warned that the momentum may not last.