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24
May 2017
China's credit rating (The Total Investment & Insurance
Solutions)
Moody's
Investors Services on Wednesday downgraded China's credit rating to A1 from Aa3
citing concerns about the country's growing debt, for the first such rating
downgrade by the American agency in twenty five years. The Total Investment & Insurance Solutions
"Moody's
expects that economy-wide leverage will increase further over the coming years.
The planned reform programme is likely to slow, but not prevent, the rise in
leverage," Moody's said in a statement here. The Total Investment & Insurance Solutions
"The
importance the authorities attach to maintaining robust growth will result in
sustained policy stimulus, given the growing structural impediments to
achieving current growth targets. Such stimulus will contribute to rising debt
across the economy as a whole," it said.
The
US ratings agency also changed its outlook for China to stable from negative on
the basis of balanced risks. The Total
Investment & Insurance Solutions
The
statement said the downgrade reflected expectations that China's financial
strength would "erode somewhat over the coming years, with the
economy-wide debt continuing to rise as potential growth slows".
China's
economy grew at the rate of 6.7 per cent in 2016, as compared with 6.9 per cent
in the previous year. The Total Investment
& Insurance Solutions
While
the Chinese government budget deficit in 2016 was at around three per cent of
gross domestic product (GDP), Moody's expected the government's debt would rise
toward 40 per cent of GDP by 2018 and 45 percent by the end of the decade.
It
also expected contingent and indirect liabilities to rise due to the policy
bank loans, bonds issued by Local Government Financing Vehicles and other
state-owned enterprises' investments.
Moody's
also said the economy-wide debt of the government, households and non-financial
companies would rise, as economic activity tends to be financed with debt in
the absence of a sizeable equity market. The
Total Investment & Insurance Solutions
In
this regard, the report noted that the financial sector in China remained
underdeveloped despite recent reforms. The
Total Investment & Insurance Solutions
"Pricing
of risk remains incomplete, with the cost of debt still partly determined by
assumptions of government support to public sector or other entities perceived
to be strategic," it said.The Total
Investment & Insurance Solutions
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