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Credit rating stays despite slowdown

By Wang Xiaotian and Chen Jia  (China Daily)

08:46, May 29, 2012

A major international agency maintained its positive outlook on China's sovereign credit rating but warned that the ongoing European debt crisis could still risk the granting of an upgrade.

Moody’s Investor Service granted a positive outlook in 2010 and kept it on Monday. Moody's typically has a two-year time frame for making a ratings move after issuing an outlook.

Moody’s said its outlook reflected China’s long-term fiscal and growth trends that were "supportive" of a higher rating.

Cooling inflation also favors more scope for monetary policies to spur the economy, said Tom Byrne, Moody's senior vice-president and director of analysis for sovereign risk in Asia and the Middle East, on Monday.

The ratio of government debt to GDP could decline to somewhere between 30 to 35 percent, from more than 40 percent at present, he said.

Moody's changed its outlook on China's sovereign credit rating of A1 to positive in November 2009. One year later, it upgraded the rating to Aa3 with a positive outlook, the fourth-highest out of 10 investment-grade rankings.

It is the only one of the three biggest credit-rating agencies with a "positive outlook’’, an indication the rating may be raised, according to Bloomberg.

The economy's fundamentals provide the basis for sustained and strong growth and prospects are good for further improvement in its credit profile, Byrne said.

Challenges from the 2008 to 2010 credit boom remain, but the economy has the fiscal and monetary space to offset such downside pressures, he added.

According to results of Moody's two bank stress tests, covering the next 18 months, the impact of deteriorating asset quality on the capitalization of lenders would be well contained even if GDP growth slowed to about 7 percent, with the non-performing loan ratio rising to 6 to 9 percent.

"But if the economy registers a growth rate of 4 or 5 percent, the banking system would be in trouble as the loan ratio would surge to as high as 20 percent," said Yvonne Zhang, vice-president at Moody's Investors Service (Beijing) Ltd.

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