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Standard & Poor's cuts China’s rating to A+ citing higher financial and economic risks

One of the top global rating agencies, Standard & Poor has downgraded China’s sovereign rating by one notch from AA- to A+ citing higher financial and economic risks. With this action, S&P’s rating on China came at par with the two other rating agencies, Moody’s and Fitch. Moody’s reduced China’s rating by one notch back in May this year. The announcement comes at a time when the United States under the Trump administration has started up taking a tough stance on Chinese imports that rely heavily on state subsidies, in order to reduce the trade imbalance between the two countries.

The rating agency said in a statement,

“The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks. Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”

Chinese corporate sector liability has been a contentious issue for quite some time now, with many analysts expecting a blow-up. However, the government has so far managed to contain the damage.

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