27 May, 2017
China's National Development and Reform Commission (NDRC) said debt risks were generally controllable as measures to lower corporate leverage had achieved initial results, and systemic risks from debt were relatively low.
The ministry said the Chinese government's liability ratio stood at 36.7 percent to GDP by the end of a year ago, compared to the European Union's 60 percent and far below the level of other major economies and emerging markets.
China has balked at the downgrade.
Moody's expects China's economy, the world's second biggest, to continue gradually slowing, with potential economic growth declining to close to 5 percent over the next five years.
And its arguments are similar to India's: "Moody's has overestimated the difficulties faced by the Chinese economy, while underestimating the capabilities of China to deepen side-supply reforms".
The planned reform programme is likely to slow, but not prevent, the rise in leverage.
Its market cap had reached HK$2.58 trillion ($331.23 billion), dwarfing the gross domestic product (GDP) of its birthplace Shenzhen, which stood at 1.94 trillion yuan ($281.58 billion).
Also, as per the report, India's revenues at 21 per cent of GDP are considerably lower than the median income of countries with the BAA ratings: 27.1 per cent.
"We expect direct government, indirect and economy-wide debt to continue to rise, signalling an erosion of China's credit profile", Moody's said in a statement. Meanwhile, Hong Kong's Hang Seng index was down slightly by 0.1%. It would dampen market sentiment should S&P decide to follow suit in the near-term. "Still, progress remains faltering and in some respects, movement is in the wrong direction".
At the same time, Moody's has changed to stable from negative the rating outlooks of 24 out of the 26 GRIs and rated subsidiaries.
Zhu Chaoping, a China economist at UOB Kay Hian Holdings, told Fox Business that the downgrade will likely influence the Chinese exchange rate and weaken the ability for companies in the region to take out more debt or repay existing loans. In particular, China's recent regulatory tightening should help deflate the country's credit markets and lead to long-term market stabilisation'.
But analysts have expressed scepticism about whether Beijing will back up its talk with real action since freewheeling credit conditions have underpinned the growth China's Communist Party relies on for political legitimacy.
Schroders emerging market economist Craig Botham warns the attempts by China's authorities to tighten policy have contributed to significant moves in bond yields, which highlights how hard it will be for the Chinese government to deal with the debt issue.
