An office of Standard & Poor’s in New York. Photo: CFP
China said on Friday international credit rating agency S&P Global Ratings "made a wrong decision" in downgrading China's credit rating, saying the firm neglected the characteristics of the country's financing structure and underestimated the country's economic potential.
The firm's concerns over problems like China's hyper-fast credit growth are not rare for the current stage of its economic development, which, however, neglect the characteristics of the country's financing structure as well as the wealth accumulation and material basis for government expenses, the Ministry of Finance (MOF) said in a statement.
Regrettably, S&P's decision is a result of international rating agencies' conventional thinking and misinterpretation of China's economy based on developed countries' experience, the MOF said, noting this misinterpretation also reflects their ignorance of China's sound economic fundamentals and development potential.
The MOF's reaction comes after S&P Global Ratings lowered China's long-term sovereign credit ratings by one notch to A+ from AA-, the first time since 1999, out of concerns of increasing economic and financial risks from rising debt. The ratings outlook is stable, it said.
"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 released on Thursday.
Given China's high savings rate backing its indirect financing-oriented financial system and banking loans' leading role in social funding, the nation is completely capable of maintaining a stable financial system if the regulators effectively contain credit risks by prudent lending and tightening regulation, the MOF said.
China has adhered to a stable monetary policy in recent years, and hasn't flooded its economy with strong stimulus measures, the MOF continued.
The country's currency growth is gradually declining. In August, M2, a broad measure of money supply that covers cash in circulation and all deposits, rose 8.9 percent from a year earlier, far below the average growth rate since the 2008 global financial crisis.
Meanwhile, the central government has made efforts to contain financial risks, regulate wealth management business and crack down on shadow banking, which have helped guarantee the stability of the domestic financial system and sustainability in serving the real economy, according to the MOF.
Liu Xuezhi, a senior analyst at Bank of Communications, also told the Global Times on Friday that the S&P's assumption that China's financial risks are accumulating because of increasing credit is groundless.
"Growing credit doesn't necessarily mean that the financial risks must increase as well. If the economy is healthy and that companies have the capacity to repay their debt, then there's nothing wrong with banks lending money," Liu noted.
Liu said China's financial status is very stable. Major commercial banks had a capital adequacy ratio of 13.2 percent by the end of June, up from 10.75 percent at the end 2016.
Liu added that the government has deleveraged the financial sector, and those efforts have had a significant impact.
"For example, the real estate bubble has shrunk as a result of government policies," Liu said.
Despite the credit problem, S&P still noted that China's economic growth will remain strong at close to 5.8 percent or more annually through at least 2020, but the firm expected credit growth in China to outpace that of nominal GDP over much of this period.
The MOF said China's economy has maintained a trend of stability, while also showing signs of improvement.
According to the MOF statement, China saw GDP growth of 6.9 percent in the first six months of this year, higher than the goal that had been set by the government. Also, China has had a medium to high economic growth rate for eight quarters in a row.