Singapore, May 07, 2013 -- Moody's Investors Service, in its annual report on China,
says that the sovereign's Aa3 foreign and local currency bond ratings
remain supported by its relatively high economic strength and very high
government financial strength, which are not jeopardized by the
country's new era of slower growth.
The rating agency also indicated that the country's low --
but not insignificant -- susceptibility to event risk, along
with its moderate institutional strength, currently constrain its
rating. The outlook for China's credit rating is stable.
Moody's Aa3 rating on China anticipates that the government will
implement effective macro-prudential regulations and advance broad
reforms that will help contain latent risks which could undermine China's
new, more moderate growth path. These risks notably include
contingent fiscal liabilities at the local government level and rapid
bank and nonbank credit growth. The former present more immediate
risks to government finances and to the banking sector.
Moody's conclusions were contained in its just-released annual
report, "Credit Analysis: China," and the
report does not constitute a rating action.
The report describes in detail Moody's assessment of the four key
factors constituting its sovereign bond rating methodology. Moody's
considers China's economic strength to be high; its institutional
strength to be moderate; its government financial strength to be
very high; and its susceptibility to event risk to be relatively
low and manageable.
Underpinning China's credit fundamentals is continued robust economic
growth against a backdrop of low inflation. Moody's projects
that real GDP will grow around 8.0% this year and 7.5%
next year, and that China's growth will moderate further,
but will remain well above average global growth over a five-year
horizon.
China's strong general government finances are reflected in its
small budget deficits, moderate gross financing requirements,
and a moderate on-budget debt burden slightly under 30%
of GDP. Contingent liabilities mainly associated with local government
off-budget investment expenditure, could, however,
add to the government's debt burden should a further round of local-level
liability crystallization occur.
The country's external position remains exceptionally strong.
Neither the government nor the banking sector relies on external funding,
therefore reducing vulnerability to global financial market disturbances.
China's system-wide net asset international investment position
of about 21% of GDP in 2012 is one of the strongest for a major
economy globally.
At the same time, Moody's says that governance and transparency
challenges constrain the sovereign's institutional strength at a
moderate assessment.
China's susceptibility to political (domestic and geopolitical),
financial sector or economic event risks is low, although risks
in the financial sector have risen.
China's economic growth in the years after the 2008 global financial
crisis has become more dependent on a relatively rapid expansion in bank
credit. The even more rapid growth in non-bank credit also
poses indirect risks to the banking sector, although it does not
pose an immediate risk to the balance sheets of the banks. However,
Moody's notes that recent banking and government debt crises have
often been preceded by credit booms.
China's strengths, challenges, and risks are reflected
in the sovereign's Aa3 rating and are captured in the Sovereign
Bond Rating Methodology's scorecard-indicated rating range
of Aa2-A1.
Subscribers can access the report at http://www.moodys.com/research/China-Government-of-Analysis--PBC_152927
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Thomas J Byrne
Senior Vice President
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
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Moody's: China's Aa3 rating supported by controlled growth slowdown