A+ and stable: S&P retains China rating despite Covid crisis

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Published: June 30, 2020 5:15 AM

It affirmed China's 'A+' long-term and 'A-1' short-term sovereign credit ratings, both in the third highest investment category.

This likely means that Chinese exports and manufacturing sector investments could see little growth over the next few years.This likely means that Chinese exports and manufacturing sector investments could see little growth over the next few years. (Representative image)

Notwithstanding the Covid-19 pandemic, global rating agency Standard & Poor’s on Monday affirmed China’s long-term sovereign credit rating at ‘A+’ , while retaining ‘stable’ outlook for the country.

“China is likely to maintain above-average economic growth performance relative to other middle-income economies in the next few years. However, growth is likely to come under the pressure of uncertainties over the Covid-19 pandemic, US-China tensions, and ongoing efforts to restructure the economy and reduce financial risks,” S&P said in a statement.

It affirmed China’s ‘A+’ long-term and ‘A-1’ short-term sovereign credit ratings, both in the third highest investment category.

The rating agency recently affirmed India’s sovereign rating at ‘BBB-‘ (lowest investment grade) with stable outlook, reflecting its view that India’s economy and fiscal position will stabilise and begin to recover from 2021 onwards. Among other rating agencies Moody’s, which announced a downgrade for India recently, and Fitch also have comparable ratings for India.

S&P does not expect US-China relations to normalise in the foreseeable future. This likely means that Chinese exports and manufacturing sector investments could see little growth over the next few years. The US’ restrictions on technology transfers to China could also hinder productivity improvements. In this environment, China is more likely to maintain strong economic growth if the reform momentum picks up, S&P feels. “The stable outlook reflects our view that China will maintain above-average headline GDP growth and see improved fiscal performance over the next three to four years,” S&P wrote.

The agency expects China’s per capita real GDP growth to average 5.5% annually in 2021-2023, as the economy recovers from the Covid-19 shock. It projects China’s GDP growth to be 1.2% in 2020 and expects it to improve to 7.4% in 2021. In contrast, it has projected India’s GDP to contract by 5% in 2020-21, before registering 8.5% growth on the resultant low base in 2021-22.

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