Moody’s Downgrades China Over Worries About Its Growing Debt


(THIS ARTICLE IS COURTESY OF THE NEW YORK TIMES)

SHANGHAI — Moody’s Investors Service downgraded its credit rating on China’s sovereign debt by a notch on Wednesday, saying that the steady buildup of debt in the Chinese economy would erode the country’s financial strength in the coming years.

In a bluntly worded statement, Moody’s said that the Chinese government remained committed to achieving high economic growth despite slowing productivity gains and a shrinking population of working-age adults. The only way for China to achieve that high growth is to allow its debt to continue to grow as a way to stimulate the economy, Moody’s warned.

”The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economywide debt continuing to rise as potential growth slows,” the credit rating firm said.

Moody’s moved down China’s debt rating to A1 from Aa3, but changed its outlook for further ratings adjustments to stable, from negative.

Moody’s action is still likely to anger Chinese officials, who have tried hard to persuade the Chinese public and the international financial community that they have the country’s debt troubles well in hand.

Stock markets in China and Hong Kong opened slightly lower on Wednesday on the news. The Australian dollar, which is widely considered a barometer of investor sentiment about China because Australia sells so much of its raw materials to that country, weakened against the United States dollar.

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