China’s Debt-rating Downgraded by Moody’s to A1 from Aa3

May, 25 2017

The credit rating of China was downgraded by Moody’s Investors Service on Wednesday, the previous Aa3 (Double A-3) were down to A1 which means that the Chinese economy is going to grind lower for the next years as the country showed slow growth and its debt continuously increase. The downgrade is done due to the financial pressure that the government faces after years of credit-driven stimulus.

Craig Erlam, a Senior Market Analyst of Oanda, said in an interview,  “Because talk of Chinese debt and concerns about the size of Chinese debt has been going on for the last few years. They seem to be very reliant on these high levels of growth, which has been slowing.” He further added that the credit downgrade does not surprise him at all.

The second largest economy in the world gained 6.7 percent last year and 6.9 in 2015, this pace is the slowest based on the records since 1990 by which Erlam believes that the following years appears to be challenging.

The bond credit rating company has expectations that the direct debt burden of China’s government will climb higher reaching 40 percent of 2018’s Gross Domestic Product which is close to the 45 percent as the decade ends. However, it remains lower to the 60 percent for the European Union.

The Finance Ministry of the republic claims that the downgrade is based on an improper approach that overestimated the risks on the increasing debt.