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Finance & Economy

Moody’s lowers China outlook after Fitch downgrade


Beijing WorkerMoody’s Investors Service on Tuesday affirmed China’s government’s bond rating of Aa3 but cut the outlook to stable from positive, the second pessimistic revision by a foreign ratings agency this month.

Last week, Fitch Ratings cut China’s long-term local currency credit rating to A-plus from AA-minus, citing concerns about the risk that excessive local government borrowing posed to the wider economy. Moody’s referred to the same issue in justifying its negative revision.

“Progress has been less than anticipated in the process of both reducing latent risks by making local government contingent liabilities more transparent and in reining in rapid credit growth; therefore, some of the upward pressure on the Aa3 rating has eased,” it said.

Moody’s said it affirmed the Aa3 rating because of China’s credit fundamentals, which have been underpinned by continued robust economic growth, strong central government finances and an exceptionally strong external payments position.

The report said more reform would be necessary to prevent a buildup of pressures that could increase the risks of a hard landing for the Chinese economy. But it credited China for maintaining better fiscal metrics than Belgium or France, and noted that China’s massive international investment position means its external assets exceed its domestic liabilities to the tune of $1.8 trillion.

“Only a handful of highly rated advanced industrial economies – such as Norway, Switzerland, Japan, Hong Kong and Singapore – have a stronger international investment position.”

China has seen rapid credit expansion as a result of Beijing’s stimulus in 2008-09 to counter the global crisis, but the country has had trouble shaking off the hangover created by sloppy asset allocation and investment bubbles resulting from the flood of cheap cash.

Local government financing vehicles stand accused of making investments in vanity projects and ghost cities that are unlikely to produce sufficient returns to pay off bank loans.

The head of China’s National Audit Office (NAO) recently estimated that outstanding debt of local and central governments was 15 to 18 trillion yuan — equal to 29 to 35 percent of GDP — at the end of 2012.

But even as Beijing has moved to clean up balance sheets at Chinese banks, borrowers and lenders have collaborated to develop new forms of off-balance sheet financing that regulators feel are both concealing and complicating the risk bad loans pose to the wider economy.

Source: Reuters – “Moody’s lowers China outlook after Fitch downgrade”
 
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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

Discussion

4 thoughts on “Moody’s lowers China outlook after Fitch downgrade

  1. Reblogged this on sueshan123.

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    Posted by chandralatha | May 11, 2013, 4:30 pm

Trackbacks/Pingbacks

  1. Pingback: Easing Chinese inflation helps to mask monetary problems. | China Daily Mail - May 3, 2013

  2. Pingback: Ahead of a China credit bubble implosion? | China Daily Mail - June 18, 2013

  3. Pingback: China heading for unprecented credit bubble implosion | China Daily Mail - June 18, 2013

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