S&P cuts China’s credit rating, citing increasing economic, financial risks

(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.

A worker welds reinforcement bars at a site of a highway bridge under construction in Hefei, Anhui province, China September 21, 2017. REUTERS/Stringer

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.

FILE PHOTO: A man walks through a cloud of dust whipped up by wind at the construction site near newly erected office skyscrapers in Beijing, China April 20, 2017. REUTERS/Thomas Peter/File Photo

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,

Our Standards:The Thomson Reuters Trust Principles.

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