By KEITH BRADSHER in The NY Times
SHANGHAI — Moody’s Investors Service downgraded its credit rating on China’s sovereign debt by a notch on Wednesday, saying 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 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 such 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.
The 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.
Total debt in the Chinese economy — including the government, households and businesses — reached 256 percent of economic output at the end of last year, according to the Institute of International Finance, a trade group of global banks. That is high by the standards of developing countries but comparable to the figures for many Western countries, and considerably less than Japan’s.
The main worry about China’s debt is how fast it is rising. It has been increasing lately by an amount equal to about 15 percent of the country’s output each year, just to keep the economy growing between 6.5 and 7 percent. By contrast, overall debt in China as a percentage of economic output barely changed from 2001 until the beginning of the global financial crisis in 2008.
Economists at the International Monetary Fund and at Goldman Sachs have issued a series of increasingly strong warnings about the pace at which the debt is rising. Its acceleration has few parallels in other countries since World War II.
The closest comparisons, some economists say, are Greece and Spain in the years preceding their steep economic nose-dives amid the global financial crisis.
In a series of interviews over the past two weeks, current and former Chinese officials contended that the structure of their country’s debt made it inherently much more stable than the debts of other nations.
For starters, China owes little to other countries. The Chinese central government owes almost nothing.https://www.nytimes.com/2017/05/23/business/moodys-downgrades-china-economy-debt.html?rref=collection%2Fsectioncollection%2Fasia&_r=0
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