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S&P cuts China's credit rating, citing increasing economic, financial risks

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S&P cuts China's credit rating, citing increasing economic, financial risks

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(Reuters) – S&P Global Ratings downgraded China’s long-term sovereign credit rating by one notch on Thursday to A+ from AA-, citing increasing risks from the country’s rapid build-up of credit. “The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks,” S&P said in a statement, adding that the ratings outlook was stable. S&P’s downgrade follows a similar demotion by Moody’s Investors Service in May and comes as the government grapples with the challenges of containing financial risks stemming from years of credit-fuelled stimulus spurred by the need to meet official growth targets. It also comes less than a month ahead of a highly sensitive twice-a-decade Communist Party Congress which will see a key leadership reshuffle. Concerns about China’s sustained strong credit growth appear to be increasing, even as first-half economic growth beat expectations. China’s stock markets were already closed Thursday when the downgrade was published, and there was little reaction from the yuan. S&P said that recent efforts by the government to reduce corporate leverage could stabilise financial risks in the medium-term. “However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually,” S&P said. S&P also lowered China’s short-term rating to A-1 from A-1+.

(Reporting by Bangalore newsroom, and Elias Glenn in Beijing,)
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