(Reuters) – S&P Global Ratings downgraded China’s long-term sovereign credit rating by one notch on Thursday to A+ from AA-, citing increasing risks from the country’s rapid build-up of credit.
“The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks,” S&P said in a statement, adding that the ratings outlook was stable.
S&P’s downgrade follows a similar demotion by Moody’s Investors Service in May and comes as the government grapples with the challenges of containing financial risks stemming from years of credit-fueled stimulus spurred by the need to meet official growth targets.
It also comes less than a month ahead of a highly sensitive twice-a-decade Communist Party Congress which will see a key leadership reshuffle.
Concerns about China’s sustained strong credit growth appear to be increasing, even as first-half economic growth beat expectations.
China’s stock markets were already closed Thursday when the downgrade was published, and there was little reaction from the yuan.
S&P said that recent efforts by the government to reduce corporate leverage could stabilize financial risks in the medium-term.
“However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually,” S&P said.
S&P also lowered China’s short-term rating to A-1 from A-1+.
Reporting by Bangalore newsroom, and Elias Glenn in Beijing,