Bangkok--13 Jan--Standard & Poor's
--China's large external asset position, strong economic growth potential, and modest government debt underpins its credit ratings.
--We affirmed our sovereign ratings on the People's Republic of China.
--The outlook on the long-term credit rating remains stable.
Standard & Poor's Ratings Services today affirmed its 'A+' long-term and 'A-1+' short-term sovereign credit ratings on the People's Republic of China. The outlook remains stable. The transfer and convertibility (T&C) assessment on China remains 'A+'.
The sovereign ratings on China reflect the country's large external asset position, strong economic growth potential, and a modest level of government indebtedness. These strengths outweigh sizable contingent liabilities in the banking system if the economy suffers an extended slowdown. Chinese policymakers' continued reliance on administrative tools, such as direct credit controls, for macroeconomic management is also an important credit weakness.
"We forecast China's large net external asset position to exceed 120% of current account receipts in 2010," said Standard & Poor's credit analyst Kim Eng Tan. "We expect this to limit the fallout from further economic or financial shocks. Structural, regulatory, and financial sector reforms have continued amid the current slowdown. We expect this to help sustain annual trend growth of real GDP at about 8% over the next decade."
China's fiscal flexibility remains significant. We expect the general government account to show deficits amounting to more than 3% of GDP in 2009 and 2010. But with the scaling-down of fiscal stimulus following an expected economic recovery starting 2010, the deficit should begin to shrink by 2011, Mr. Tan said. We project the net government debt at close to 18% of GDP at the end of 2011, well below the 30% forecast for the median 'A'-rated sovereign.
The Chinese government faces moderate risks of balance sheet damage if the recovery is not sustained and the economy enters a period of prolonged slowdown. The viability of many public enterprises, only partly reformed and often heavy with debt, would be threatened in such a scenario.
Policymakers' reliance on administrative tools for macroeconomic management accentuates the risks of this scenario materializing. Administrative measures often introduce economic distortions that could have abrupt or unpredictable effects. Such measures could increase economic volatility if introduced based on untimely or inaccurate analyses of the economic situation.
The T&C assessment on China remains 'A+', reflecting the extensive government administrative controls over foreign exchange transactions in the country.
The stable outlook on the rating reflects Standard & Poor's view that China's substantial foreign exchange reserves and strong fiscal position will permit the government to absorb future balance sheet losses from the broader public sector with little damage to its credit standing.
RELATED RESEARCH
"Credit FAQ: Is Rapid Loan Growth Putting China's Banking Reforms At Risk?" published July 10, 2009.
"Asia-Pacific Sovereign Report Card: Amid Encouraging Signs, A Bumpy Road Lies Ahead," published June 9, 2009.
"Will The U.S. Dollar Be Clipped?" published April 21, 2009.
"China's Stimulus Plan: Local Governments Get More Fiscal Freedom, But Can They Unleash Productivity?" published March 15, 2009.
"Sovereign Credit Ratings: A Primer," published May 29, 2008.
Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers 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:
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Analyst Contacts:
KimEng Tan, Singapore (65) 6239-6350
William Hess, Hong Kong (852) 2533 3595
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