Bangkok--17 Dec--Standard & Poor's
A positive revision in Standard & Poor's assessment of the risks to China's macroeconomic and financial stability supports the upgrade. We raised our long-term sovereign credit ratings on the People's Republic of China to 'AA-' from 'A+' and affirmed our short-term rating of 'A-1+'. The stable outlook reflects our view of China's strong capacity to absorb potential balance sheet losses, given its substantial foreign reserves and strong fiscal position.
Standard & Poor's Ratings Services today raised its long-term foreign and local currency sovereign credit ratings on the People's Republic of China to 'AA-' from 'A+'. The outlook on the long-term ratings is stable. At the same time, Standard & Poor's affirmed its short-term ratings at 'A-1+' and revised its transfer and convertibility assessment on China to 'AA-' from 'A+'.
"The upgrade reflects a positive revision in Standard & Poor's assessment of the risks to China's macroeconomic and financial stability," said Standard & Poor's credit analyst Kim Eng Tan. "We believe the Chinese authorities would respond to future threats to financial stability with timely measures, based on our observations over the past two years."
New announcements and implementations of structural reforms during the recent global economic slowdown also improve the likelihood of macroeconomic stability in the medium term. As a result, we also lowered our assessed likelihood of a realization of heavy contingent liabilities on the Chinese government, which could affect its creditworthiness, Mr. Tan said.
The sovereign credit ratings on China reflect the government's modest indebtedness, a strong external asset position, and our view of the economy's exceptional growth prospects. These strengths outweigh sizable contingent liabilities in the banking system that could materialize if an extended economic slowdown unfolds. A further credit weakness of China is policymakers' continued reliance on administrative tools for macroeconomic management.
The stable rating outlook reflects Standard & Poor's view that China can absorb potential balance sheet losses with little damage to its credit standing, given its substantial foreign exchange reserves and strong fiscal position.
"We may raise the ratings again if structural reforms lead to sustained economic growth that significantly lifts the average income level," Mr. Tan said. "Conversely, we may lower the ratings if reform efforts weaken, in combination with a markedly weaker economic performance and worsening banking sector credit metrics than what we currently expect."
RELATED CRITERIA AND RESEARCH
Sovereign Credit Ratings: A Primer, published May 29, 2008
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
David Wargin, New York (1) 212-438-1579,
[email protected]
Analyst Contacts:
KimEng Tan, Singapore (65) 6239-6350
David T Beers, London (44) 20-7176-7101