Moody's Raises China Outlook to Positive From Stable
Nov. 9 (Bloomberg) -- Moody’s Investors Service raisedChina’s ratings outlook to “positive” from “stable,” citingthe government’s success in steering the nation through theglobal financial crisis.
The change affects the government’s A1 foreign and localcurrency bond ratings, Moody’s said in an e-mailed statementtoday. The ratings company also lifted Hong Kong’s outlook topositive from stable.
“The country’s very strong international investmentposition has insulated it from the global financial crisis andreduced to a negligible level the risk that China could face afuture balance of payments crisis,” said Tom Byrne, a Moody’ssenior vice president.
Record new lending and a 4 trillion yuan ($586 billion)stimulus package of spending on roads, power plants and low-cost housing has driven the rebound in the world’s third-biggest economy after exports collapsed. The nation’s foreign-currency reserves swelled to a record $2.273 trillion inSeptember as the recovery attracted more money from abroad.
“It’s another reflection of the broad strengthening ofthe Chinese economy,” said David Cohen, an economist withAction Economics in Singapore. “The consensus is that theeconomy will grow more than 9 percent next year and that willbe supportive of government finances.”
China’s stimulus program is having only a modest impact ongovernment finances and doesn’t “pose unmanageable risks tothe government’s very high financial strength,” Byrne said.
‘Affordable’ Debt
Government debt will stay low, “affordable and finance-able with good prospects for a resumption of the downwardtrajectory in the debt level over the medium term,” Moody’sadded.
Bets are rising that China will allow its currency tostrengthen as exports recover and major trading partners stepup calls for appreciation to resume. Twelve-month non-deliverable forwards for the yuan climbed 0.36 percent to6.6085 per dollar as of 3:33 p.m. in Shanghai, the biggest gainin three weeks.
European Central Bank President Jean-Claude Trichet andJapanese Vice Finance Minister Yoshihiko Noda last week calledfor the yuan to gain, while an International Monetary Fundreport published Nov. 7 said the currency was “significantlyundervalued.”
People’s Bank of China Governor Zhou Xiaochuan said Nov. 6that “pressure from the international community to allow yuanappreciation is not that big.”
Hong Kong
In raising Hong Kong’s rating outlook, Moody’s citedChina’s strong economic growth and said this lessened any“hypothetical risk” for the city emanating from the mainland.
Moody’s also raised from positive to stable the outlook onits ratings for seven Chinese banks.
The banks are Industrial and Commercial Bank of China Ltd.,China Construction Bank Corp., Bank of China Ltd., AgriculturalBank of China, China Development Bank Corp., Export-Import Bankof China and Agricultural Development Bank of China.
China’s banking system, which has advanced a record $1.27trillion in new loans this year, is emerging from the crisis ina relatively strong position and won’t likely pose any sizablerisk to the government’s balance sheet, Moody’s said.
“The earnings power, loan loss reserves, and capitaladequacy levels of its largest banks appear strong enough tocope with the stress scenarios which could emerge from thecredit boom that has been a key element of the government’sstimulus policy,” Moody’s said.
Asset Bubble Risk
The risks of asset-price bubbles and misallocation ofcapital amid abundant liquidity “need to be addressed,” theWorld Bank said last week.
Investors are signaling China’s debt rating is too low foran economy set to overtake Japan as the second biggest.
Contracts to insure China’s bonds are less expensive thanthose for Greece or Ireland, each deemed at least as safe byMoody’s, Standard & Poor’s or Fitch Ratings, after beingpricier in 2008. They also are cheaper than all but five of 38emerging-market credit-default swaps tracked by Bloomberg.
“With net foreign assets equal to 36 percent of GDP --bolstered by more than $2 trillion in official foreign-exchangeholdings -- only a handful of highly rated advanced industrialeconomies, such as Norway, Switzerland, Japan, Hong Kong andSingapore, have a stronger international investment positionthan China,” Byrne said.
China’s government debt is higher and rising more rapidlythan the headline official numbers suggest, in particular ifdebts accumulated by state-owned enterprises developinginfrastructure under local governments are included, the WorldBank said last week.
Moody’s said it will monitor closely whether the nation’sstimulus may lead to the build-up of contingent liabilities,which it said could emerge from local-government level finances.
To contact the reporter on this story:Kevin Hamlin in Beijing at khamlin@bloomberg.net
Last Updated: November 9, 2009 02:44 ESTSource: Bloomberg
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