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Published: Fri, September 22, 2017
Culture | By Antonia Gonzales

China's credit rating downgraded by S&P

China's credit rating downgraded by S&P

Standard & Poor's cut its rating on China's long-term debt rating following a prolonged period of strong credit growth that has increased the country's financial and economic risks.

S&P downgraded China to A+ from AA-, a one notch change.

The latest move by S&P follow that of rival agency Moody's which downgraded China's government debt in May this year. A separate report out earlier this month showed that China's housing sales growth in August was the slowest in over two years (http://www.marketwatch.com/story/china-housing-sales-growth-at-slowest-in-2-years-2017-09-14), though developers kept building at a steady rate.

"Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent", the agency added.

Claire Dissaux, head of global economics and strategy at Millennium Global Investments in London, told Reuters the debt problem in the country was vast: "China's credit problem is the biggest problem we have ever seen in any country and probably justifies a lower rating".

Beijing has been clamping down on bank lending and property purchases, but those efforts are complicated by the government's determination to meet its full-year growth target of around 6.5 percent.

ING Bank economist Iris Pang does not agree with S&P that economic and financial risks are rising.

Despite government measures, S&P foresee the credit growth in the next two to three years to remain at levels that will lift financial risks gradually.

Citing well known worries, the rating agency said China's fast-accumulating debt load was raising financial and.

However, it warned that another downgrade "could ensue if we see a higher likelihood that China will ease its efforts to stem growing financial risk and allow credit growth to accelerate to support economic growth".

The ratings on China reflect S&P's assessment of the government's reform agenda, growth prospects, and strong external metrics.

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