Guang Niu/ Getty ImagesAfter placing China’s sovereign credit rating on watch negative 15 months ago — laying the potential trigger for a ratings downgrade — ratings agency Moody’s followed through today, downgrading the nation’s credit rating one notch from Aa3 to A1 with a steady outlook. A1 is the fifth-highest rating assigned by Moody’s, and is deemed to be investment grade. According to Khoon Goh, David Qu and Raymond Yeung, researchers at ANZ, Moody’s decision to downgrade stems from “their expectation that China’s debt will continue to rise while potential growth slows, eroding the country’s credit metrics”. “Moody’s does not see the government’s reforms as fully offsetting the rise in economic and financial risk,” the trio wrote in a note released following the decision. This, they say, has the potential to create a negative feedback loop within the Chinese economy. They explain: From a macro perspective, downgrade by rating agencies could potentially erode the financial soundness of China, creating the risk of a negative feedback loop.
Comment on ANZ: China's downgrade by Moody's risks creating 'a negative feedback loop'
feedback@businessinsider.com (David Scutt), Business Insider
Tue, 05/23/2017 - 9:23pm
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