Bangkok--1 Aug--Standard & Poor's Standard & Poor's Ratings Services today raised the long-term sovereign credit rating on the People's Republic of China to 'A+', from 'A'. The short-term credit rating has also been raised to 'A-1+' from 'A-1'. The outlook on the long-term rating is stable. At the same time, the credit rating on senior unsecured issues has also been raised to 'A+' from 'A'. At the same time, the credit ratings on four Chinese policy financial institutions have also been raised to bring them in line with the sovereign ratings. We raise our long-term ratings on Agricultural Development Bank of China, Export-Import Bank of China, China Development Bank, and China Export & Credit Insurance Corp. to 'A+' from 'A'. The short-term credit ratings on these institutions have also been raised to 'A-1+', from 'A-1'. The outlook on the long-term credit ratings on these policy financial institutions is stable, in line with that on the sovereign rating. "The ratings upgrade is motivated by China's improving fiscal and external position," said Standard & Poor's credit analyst Kim Eng Tan. "These improvements to the government balance sheet will offer greater resilience to deal with the shocks of a potential sharp economic downturn." The sovereign credit ratings on China are supported by the country's strong external asset position, exceptional economic growth potential, and continuing improvements to the government's financial position. The key weakness in China's credit quality is the risk of balance sheet damage in an abrupt and prolonged economic slowdown arising from banking sector distress. Policymakers' reliance on administrative tools for macroeconomic management exacerbates this risk. Such measures could increase economic volatility if introduced based on untimely or inaccurate analyses of the economic situation. The stable outlook on the sovereign ratings on China reflects Standard & Poor's assessment that risks of contingent liabilities to the government balance sheet will be held at a moderate level in the next three to five years. "Over this period, we expect financial shocks arising from potential economic volatility will not cause a significant deterioration of the government balance sheet," Mr. Tan said. The ratings could be raised again if structural reforms lead to sustained improvements in the operational and financial performances of key domestic industries, especially financial institutions. Conversely, a flagging reform effort, in combination with a markedly weaker economic performance and worsening banking sector credit metrics than we currently expect, could result in downward pressure on the ratings. Complete ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, 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; select your preferred country or region, then Ratings in the left navigation bar, followed by Credit Ratings Search. 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 Ping Chew, Singapore (65) 6239-6345 John Chambers, CFA, New York (1) 212-438-7344