Moves to downgrade China’s credit rating do not indicate imminent trouble for the world’s second-largest economy but instead point to the country’s “worrisome” long-term direction of travel, global economic analysts have said.
Markets saw an initial sell-off in early Asian trading Wednesday after Moody’s Investor Services downgraded China’s credit rating one notch to A1 from Aa3, though losses were largely recovered by the close.
“I don’t think one responds specifically to this news, I think it just confirms what we know, which is that there’s an awful lot of debt in China,” Chris Watling, chief executive of Longview Economics, told CNBC Wednesday.
“If you look at it rationally I think it’s the biggest credit bubble I’ve seen in terms of build-up of debt relative to GDP in five, six, seven years that I’ve seen in my short 25-30 year career,” Watling noted.
“It’s the biggest one I can find relative to GDP of any major economy and it’s a troubling situation. There’s clearly way too much debt and at some stage it will become a real issue and I think the financial system is the place to focus.”
Moody’s said the move reflected its loss of conviction in the ability of the Chinese government to manage “economy-wide” debt levels while embarking on its ambitious reform agenda.
