China rejects ‘inappropriate’ credit downgrade, says it ‘exaggerates difficulties’

24 May 2017 02:16 PM

By CNBC : China has rejected a move by Moody's to lower its credit rating, saying the downgrade exaggerates the difficulties facing the economy and underestimates the government's reform agenda.

The country's finance ministry claimed the credit rating agency used "inappropriate methodology" in its decision to lower long-term local and foreign currency issuer ratings from "Aa3" to "A1".

"Moody's views that China's non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy," the finance ministry said in a statement Wednesday, translated by Reuters.

It added that the moves are "underestimating the Chinese government's ability to deepen supply-side structural reform and appropriately expand aggregate demand."

Moody's said that the downgrade reflects its expectation that China's financial strength will "erode somewhat" over the coming years.

The one-notch downgrade marks the first time Moody's has lowered China's credit rating in almost 30 years. It last downgraded the country in 1989.

It comes as the government moves ahead with its ambitious reform agenda, which it hopes will move the country away from its traditional dependence on manufacturing and towards a services-led economy.

Moody's argues, however, that these aims will be hampered somewhat by the country's "economy-wide debt", which it says is set to rise as economic growth slows.

Though the new rating will likely modestly increase the cost of borrowing for the Chinese government, it remains within the investment grade rating range.

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