China says Moody's downgrade overestimates difficulties facing its economy

Moody's joined other observers in highlighting the risks of an overall debt pile that hit 256% of GDP at the end of previous year, which it said signalled "an erosion" in China's credit profile. Delivery men gets briefed before lunch hour on the streets of Beijing, China, Wednesday, May 24, 2017.

HONG KONG (AP) - Moody's decision to cut its credit rating for Hong Kong soon after downgrading its China rating on worries about rising debt levels drew an objection Thursday from the business hub's financial chief.

China now has the same credit rating as Japan, Saudi Arabia and Israel.

Global rating agency Moody's on Wednesday downgraded China and cut its credit rating for the first time since 1989.

Moody's Investors Service today downgraded China's long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative.

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The agency warned that China's economy-wide debt is expected to rise further over the coming years while the government's direct debt burden rises to 45 percent of the economy by 2020 from about 40 percent in 2018.

Moody's Investors Service downgraded China's sovereign credit rating for the first time in almost 30 years, for fear that Beijing will prove unable to tame the nation's mounting debt while also keeping the economy on a steady growth trajectory.

But Beijing is playing down these concerns and the Moody's downgrade hasn't gone down well.

Currently, China's debt stands at something like 260% to GDP.

Unsurprisingly, China's finance ministry didn't agree with the move. But private sector analysts say they are moving too slowly.

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After Moody's made the downgrade, world stock moved slightly lower, though the main index in Shanghai recouped losses from early in the day to end slightly higher.

"[Moody's] is underestimating the Chinese government's ability to deepen supply-side structural reform and appropriately expand aggregate demand".

The government has trimmed its growth target for this year to about 6.5 percent after it expanded 6.7 percent last year, the slowest growth rate since 1990. Worries are that China, now the second largest economy behind the U.S, can not thrive without the ability to continue export growth. The agency also cited a potential negative impact to the central government's finances, but at the same time shifted its outlook from negative to stable.

"Moody's expects that economy-wide leverage will increase further over the coming years".

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