S&P keeps negative outlook on China debt, warns of 'hard-landing'
Analysts at Standard&Poor´s hailed China´s reform of its fiscal and monetary policies, but cautioned risks of a 'hard-landing' for Asia´s largest economy were increasing.
Coupled with Beijing´s anti-corruption campaign, those reforms should support its credit worthiness, the ratings agency said, reaffirming the Asian giant´s long-term sovereign credit rating of AA-.
Nevertheless, authorities´ dependence on credit-fueled growth risked a hard-landing; hence S&P´s decision to maintain its 'negative' outlook on China´s long-term debt rating.
"The negative rating outlook reflects our view of gradually increasing economic and financial risks to the government's creditworthiness, which could result in a downgrade this year or next," S&P said in a statement.
Beijing appeared to be more open to allowing a larger slowing in its rate of economic growth and the government´s policies increasingly emphasised a reduction in corporate leverage.
Yet the uncertain international environment meant government might be called upon to maintain heavy public investment to support GDP growth at or above 5.5% annually over the next three years.
"In this scenario, government and corporate leverage ratios would continue to deteriorate and the investment rate could remain well above what we believe to be sustainable levels. In our opinion, such trends could weaken the Chinese economy's resilience to shocks, limit the government's policy options, and increase the likelihood of a sharper decline in the trend growth rate."