Moody's Turns Favorable On China's Rating Outlook
By DITAS LOPEZ
July 10, 2006
SINGAPORE -- Moody's Investors Service Friday raised its outlook for China's A2 rating on long-term foreign-currency bonds to "positive" from "stable" and put Hong Kong on review for possible upgrade, citing improved fiscal and external payments positions for both.
Moody's also assigned a positive outlook on Macau's foreign- and domestic-currency government bond ratings.
The move reflects growing confidence that China can continue to restructure its economy and financial system without significant fallout, as output continues to grow at a fast pace.
"China's strong external position provides insulation from external shocks and allows the authorities time to introduce market-oriented reforms and restructure the banking system," Moody's Vice President Tom Byrne said. In the Moody's system, A2 is an upper-medium investment-grade rating.
The improved outlook comes as China continues to grow so quickly that the government has tried to slow loan and investment growth, and prevent adding to excess capacity in industry. China's economy is estimated to have grown more than 10% in the first half of this year and will "possibly" grow more than 9% for the full year, the country's top statistician, Qiu Xiaohua, said.
Still, analysts said Moody's rating moves aren't likely to affect financial markets.
"Markets are moving ahead of the rating agencies," said Tim Condon, head of research and chief economist for Asia at ING Bank. "These actions will not have much impact on the pricing of both China and Hong Kong credit."
Moody's said successful reforms in China's financial sector would encourage it to raise China's sovereign rating to A1 from A2.
A rating upgrade also would depend "on maintenance in the status quo in cross-strait relations with Taiwan and no rupture of other regional geopolitical fault lines," Moody's said.
China is due to fully open its banking sector to foreign competition by the end of the year, as part of commitments it made to the World Trade Organization.
The rating agency said Hong Kong's and Macau's ratings should continue to be linked with that of China because of their economic and financial integration.
The review of Hong Kong's investment-grade A1 foreign-currency bond rating will focus on whether its vulnerability to any potential negative shocks from the mainland has been reduced as a result of its positive fiscal, economic and balance-of-payments performance.
Moody's raised Hong Kong's local-currency guideline, which is the highest rating that can be given to local currency obligations, to Aaa from Aa1, saying the risk of an unfavorable redenomination of the Hong Kong dollar was minimal |
