S&P's upgrades China's credit rating to A- (Agencies) Updated: 2005-07-20 15:28
HONG KONG - Standard & Poor's upgraded China's sovereign credit rating
Wednesday, saying the government has made significant progress in reforms to its
shaky financial system and state-owned enterprises.
S&P raised China's long-term foreign-currency rating by one notch, to A-
from BBB+. The new level is four notches above a non-investment grade, or "junk"
status, and puts S&P closer in line with other agencies' more positive views
of China.
The Moody's Investors Service rating of A2 is five rungs above junk status,
and Fitch's A- rating is four steps higher.
Ping Chew, S&P's analyst for China, said the combination of China's
recent strong economic growth with continued reforms of state-owned enterprises
and the banking system had produced a "virtuous cycle," helping reduce the
likelihood that the government will have to undertake expensive bailouts in the
future.
"When you have better restructuring in the SOEs — they have for example
retrenched many employees since 2003 — this allows them to be less of a burden
on banks and the government. That in turn boosts the quality of banks' lending
portfolio and allows the government more flexibility," Chew told reporters.
He pointed to the government's recapitalization of Industrial &
Commercial Bank of China, the country's largest bank, as a major example of the
progress in banking reforms.
Chew noted that China's banking sector remains one of the weakest in the
world, and he warned that a sharp economic downturn could put a heavy burden on
the government.
Nevertheless, he expressed confidence that China's policymakers will be able
to manage the economic cycle well, and noted that S&P has a positive outlook
on its rating for China, meaning that further upgrades are possible.
The rating upgrade was announced the same day as the Chinese government said
the economy grew by a blistering 9.5 percent in the first half of the year,
supported by capital investment and despite government efforts to ease breakneck
growth.
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