Moody's Places China, Hong Kong
Ratings on Review for Downgrade
Associated Press
SHANGHAI, China -- Moody's Investors Service Inc. will review the credit ratings of China and Hong Kong for a possible downgrade because of Chinese export weakness and worries about Hong Kong's financial markets.
The credit-rating agency also said Friday it was considering downgrading the ratings of four major Chinese state-owned banks.
A downgrade could raise the cost of borrowing for the Chinese government and banks and make foreign investors more reluctant to put money into a country where many already are unhappy with low profits.
Even though the former British colony of Hong Kong maintains its own currency, China's difficulties are also being considered as part of the territory's review because of its extensive trade ties with the mainland.
While China has avoided a direct hit from the economic turmoil sweeping Asia, its own problems are increasing, a point noted by Moody's. "Today's action was prompted by mounting pressures on China's external position from export weakness and declining foreign direct investment, both of which are important sources of economic growth in China," Moody's said in a statement issued in New York.
Nevertheless, a top official insisted Wednesday that China would meet growth targets of 8% this year. Liu Hong, director-general of the State Statistics Bureau, said in Washington that policies meant to increase domestic demand and infrastructure spending should compensate for lower exports, the official China Daily newspaper reported.
On Monday, Moody's reduced credit ratings for major Chinese state-owned investment companies, including the Chinese Cabinet's flagship China International Trust and Investment Corp. The ratings service said it believed they were receiving less government support.
Moody's said the outlook for Hong Kong was hurt by concern that the Chinese yuan currency would be devalued. China has repeatedly promised not to devalue the yuan, but Moody's said it was looking closely at how concern over that possibility has affected Hong Kong financial markets.
Hong Kong has tied the value of its own currency to the U.S. dollar for a decade. It has held that rate steady over recent months, which has taken a toll on local industry by making the territory far more costly than other places in Asia to do business.
Efforts by the territory's de facto central bank to maintain the dollar peg by intervening in currency markets has also resulted in a "significant drop" in Hong Kong's reserves, the agency said. "Interventions in the future could weaken the foreign asset position further," Moody's said.
Late last year, Moody's downgraded the country debt ratings for several Asian nations hardest hit by the region's financial crisis -- Indonesia, Malaysia, South Korea and Thailand. The agency cited currency devaluations, outflow of funds and financial sector difficulties in those countries when it made the downgrades.
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