Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Irritation with Moody's reflects China's sensitivity as it seeks foreign investors

EconomyMay 26, 2017 06:38AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A female migrant construction worker walks into her dormitory near newly-built residential apartments in Shanghai

By Elias Glenn and Umesh Desai

BEIJING/HONG KONG (Reuters) - China has tried to brush aside a rare cut to its credit rating by Moody's Investors Service as misinformed, but its reaction highlights its sensitivity to how it is being viewed just as it seeks more foreign capital in its equity and bond markets.

The downgrade offered no new revelations on China's debt problems but effectively challenged Beijing's economic outlook and raised questions about the impact of its highly-touted reforms, adding to concerns for foreign investors, analysts say.

State media did not report Moody's decision on Wednesday to downgrade China's sovereign rating until the finance ministry issued a statement hours later saying the rating agency's analysis overestimated risks and was based on "inappropriate methodology".

The demotion by one notch to A1 was Moody's first for China in nearly 30 years, and agency officials said on Friday that another cut is possible down the road unless the country gets its ballooning credit in check.

As China pushes for inclusion in one of MSCI Inc's major global stock indices at a review next month and plans to open its bond market further to foreign investors this year, outside assessments and calls for transparency will only increase.

And if Moody's and Beijing view the same debt differently, it may partly reflect difficulties that outsiders face in getting access to information needed to assess China's risks.

"The level of access (in China) is in contrast to other countries that badly need funding," said an analyst at another ratings agency, declining to be identified due to the sensitivity of the issue.

"Funding is not really an issue for China, so the level of meetings at the Ministry of Finance or the People's Bank of China varies. Access to officials is a function of the relationships the ratings agencies have built up."

China's Ministry of Finance and the People's Bank of China did not immediately respond to faxed requests for comment.

Just this month the Financial Stability Board (FSB), the financial risk monitoring agency of the Group of 20 (G20) economies, criticized Beijing for not providing key financial data, leading to the delay in a report on the financial risks the world faces from shadow banking.

OPENING UP

With most of its debt needs funded from a large domestic savings pool, China for now can afford to play down the significance of international ratings.

And its financial markets seemed to have shrugged off the downgrade, though some traders suspect there has been a bit of state support.

On Thursday, the yuan leapt to a two-month high against the U.S. dollar on Thursday, supported by major state-owned banks in what some traders said was a show of strength after the Moody's downgrade. It rose further on Friday.

Stocks also rose sharply on Thursday, as the blue-chip CSI300 index posted its best day in more than nine months, with some traders hinting that state-directed buying might have helped prop up the market.

TILL DEBT DO US PART?

Explaining its reasons for the downgrade, Moody's cited expectations that China's debt burden would increase and that authorities would continue to rely on stimulus to meet official growth targets.

Beijing has acknowledged the debt problem, but says the risks are controllable.

For now, it is unlikely to impact foreign appetite for onshore debt because investors have already priced in a growing debt burden, said Jean-Charles Sambor, deputy head of emerging markets fixed income at BNP Paribas (PA:BNPP) Investment Partners.

"Would we like a better understanding of the structure of these debts? Of course," Sambor said.

"That's due to the complexity of the various layers of debt which includes corporate, municipal, broader public debt, as well as off-balance sheet items and shadow banking."

"The structure of the debt is very complicated and sometimes there is overlap and none of the estimates are perfect."

Lower credit ratings could make it more expensive for Chinese state firms to raise overseas debt used to fund domestic investment, and can limit the ability of some foreign funds to buy Chinese assets for their portfolios.

"I don't think (Moody's) understands the actual situation in China," said Xu Hongcai, deputy chief economist at China Center for International Economic Exchanges (CCIEE), a prominent think-tank in Beijing.

"China's economic growth prospects this year are better than last year. The economy is stabilizing and improving. (Moody's) is worried about local government debt, but they don't need to worry about that."

Irritation with Moody's reflects China's sensitivity as it seeks foreign investors
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email