Moody's cuts China debt rating for first time since 1989

Moody's also said the economy-wide debt of the government, households and non-financial companies would rise, as economic activity tends to be financed with debt in the absence of a sizeable equity market.

The agency lowered China's sovereign rating by one notch to A1 from Aa3, putting it in the same category as countries such as Japan and Israel.

China's finance ministry responded that Moody's downgrade is "inappropriate" because it's based exclusively on economic fluctuations.

Moody's said the move reflects its expectation that "China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows".

The IMF did note risks remained to growth after China's government encouraged a big build-up of borrowing to sustain the nation's growth rate after the global financial crisis.

Authorities have stepped up efforts over the last several months to curb debt and housing risks, and a raft of recent data has signaled a cooling in the economy, which grew a solid 6.9 percent in the first quarter.

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.

On currency markets, the yuan traded marginally lower against the United States dollar, while the Australian dollar, which is often seen as reflecting China's prospects due to the ties between the two countries, also slipped against the greenback. That is line with the 2016 debt burden for the median of A-rated sovereign borrowers, Moody's said yesterday.

"The erosion in China's credit profile will be gradual and, we expect, eventually contained as reforms deepen", Moody's said. "The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus".

Botham says that while China is not over-reliant on foreign lenders - external debt represents 13 per cent of GDP - the downgrade may destabilise the markets. "The greater concern though, we believe, should be that this debt build-up is contributing to a slowdown in China's sustainable growth rate".

The UK's creditworthiness is now assessed as Aa1 by Moody's, which is its second-strongest credit rating.

BEIJING (AP) - China has criticized a decision by the Moody's rating agency to cut its rating for Chinese government debt and defended Beijing's finances and economic reforms. Fitch though has maintained its A plus ratings with stable outlook since 2007.

The downgrade was not received well by China, with the government accusing the ratings agency of using 'inappropriate methods'. Moody's expects growth to slow to about 5% over the next five years.

The agency warned China's economy-wide debt is expected to rise further.

  • Zachary Reyes