Moody's Downgrades China's Sovereign Credit Rating Over Slowing Growth And Debt Fears
Moody's Downgrades China's Sovereign Credit Rating Over Slowing Growth And Debt Fears
source South China Morning Post
Tim Worstall , CONTRIBUTOR
Moody's Investor Services has decided to do a one notch downgrade to China's sovereign debt rating. This is over the thought that growth is likely to slow and that the debt burden imposed by that credit fueled expansion could become more difficult to service. Of course, it is only the one notch, the country is still viewed as investment grade, but on the other hand this is the first time in 30 years there has been such a change. That is, since the beginning of that startling climb up out of Mao inspired peasant destitution.
We should also note that a change by one of the three major ratings agencies means not much at all. For the usual practice is to take the average of those three--what any two of them say is the rating becomes the market acceptance of what the rating is. Thus with such a change we always need to think about when one or other of the next two will change, or whether this is the second itself:
Moody's Investors Service downgraded China's credit ratings on Wednesday for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.
You should be able to read the full decision here if you register with Moody's. The underlying point is that for the past few years China seems to have been relying upon credit expansion to produce stimulus for the economy. And thus there's a worry about how long that can continue:
China’s sovereign debt is mostly held by domestic investors, shielding the nation somewhat from the impact of ratings changes. Still, the move underscored doubts President Xi Jinping’s government can simultaneously cut excessive leverage in the financial system while keeping economic growth above the target of at least 6.5%.
Those whose view of recessions is rather Austrian have been suggesting for some time that there's a problem underlying this. Boom times always do lead to at least some malinvestment. And at some point that's got to be cleared out of the system, which is one way of describing what a recession is. And there most definitely is malinvestment in the Chinese economy. Thus the question becomes well, when does that recession arrive? Or, perhaps, will it be possible to keep the growth going even as it is cleared out?
https://www.forbes.com/sites/timworstall/2017/05/24/moodys-downgrades-chinas-sovereign-credit-rating-over-slowing-growth-and-debt-fears/#242aa1995e93
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