International credit rating agency Moody’s has announced that it decreased the credit rating of China. China’s credit rating was lowered from “Aa3” to “A1“, the outlook for Chine was pulled to negative from stable.
In the statement of Moody’s it is expressed that China’s financial power seems to be in a deteriorating manner in the coming years, and the overall growth of the debts in the economy will continue to increase and the potential growth will slow down.
In the statement it is emphasized that progress in reforms will transform the economy and the financial system and that it will not prevent the increase in the amount of debt. It is added that the stability of the country is balanced with respect to the static view.
It has been assessed that as the reforms deepen, this situation will be under control while China’s credit profile is expected to be gradual. Strong credit profile keeps China resistant to adverse shocks. The gross domestic product country will continue to remain strong. It is stressed that the economic growth potential is expected to fall to 5 percent in the next 5 years, which is due to the decline in the working age population and the slowdown in capital accumulation and productivity.
It was also reported that if structural reforms did not increase the risks in the banking sector, China would positively impact the credit rating.
On the other hand, the Chinese government is reacting to the international credit rating agency Moody’s lowering the credit rating of the country. The Ministry of Finance of the People’s Republic of China, made a press release about the issue. The ministry said that the challenges facing the Chinese economy were “exaggerated” and that the government’s efforts to deepen reforms were ignored by Moody’s. The organization finally downloaded the country’s note from A3 to Baa1 in 1989.
After Moody’s announcement, the Shanghai stock exchange fell 1.3%, and then the index retreated 0.6%, compensating for some of the losses. The offshore yuan was flat after a 0.1% decline.