Citing debt growth, S&P cuts China’s credit rating to A+ from AA-

In a major decision, rating agency S&P downgraded China’s rating by one notch from AA- to A+ reportedly due to rising economic and financial risks after a heavy credit growth months after Moody’s also downgraded the dragon nations sovereign rating. Despite the cut, China still remains five notches above India. Earlier, the agency had warned that rising local debt was putting pressure on China’s performance. Earlier, S&P had warned that rising local debt was putting pressure on China’s performance.  “The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks. 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,” S&P said in a statement. While downgrading China also means that India is a step closer to China’s rating, the gap is still huge. S&P has maintained its BBB- rating on India since January 2007, and between BBB- and A+, the difference is of five notches. This difference is not reflected just in S&P ratings. In May this year, Moody also downgraded China’s sovereign rating by one notch from A1 from Aa3, but its India rating at Baa3 rating was again five notches below China’s.

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