(The following statement was released by the rating agency)
Nov 29 -
-- China's exceptional growth prospects, strong external asset position,
and modest government indebtedness are key supporting factors for the
-- These strengths offset weaknesses associated with its low
middle-income economy, restricted information flows, and the government's
continued reliance on direct administrative tools to manage the economy.
-- We are affirming our sovereign credit rating on China at 'AA-/A-1+'.
In line with this, we are affirming our Greater China regional scale rating at
-- The outlook on the global scale foreign-currency and local-currency
long-term ratings is stable.
On Nov. 29, 2012, Standard & Poor's Ratings Services affirmed the 'AA-'
long-term and 'A-1+' short-term sovereign credit rating on the People's
Republic of China. The outlook is stable. In line with this, we are affirming
our Greater China regional scale rating at 'cnAAA/cnA-1+'. Our transfer and
convertibility (T&C) assessment is 'AA-'.
The sovereign ratings on China reflect the country's strong economic growth
potential, robust external position, and the government's relatively healthy
fiscal position. These strengths balance weaknesses related to China's lower
average income compared with similarly-rated peers, a general lack of
transparency, restricted information flows, as well as an economic policy
framework that is still evolving to suit its largely market-based economy.
We expect no major change in policy directions in China in the wake of the
recent top leadership changes. Efforts toward deepening structural and fiscal
reforms are likely to continue. We expect the Chinese economy to continue its
strong growth while the country maintains its large external creditor position
in the next three to five years.
We project per capita real GDP growth in 2013-2015 at 7.3%, less than the
10.2% average rate of the past five years (2007-2011). We expect China's high
domestic savings to be more than sufficient to fund strong investment spending
in the near future. Standard & Poor's projects that the resulting current
account surpluses will keep the country's narrow net external creditor
position at close to the amount of its current account receipts throughout
In this base-case scenario, we project general government debt to increase by
an average amount equal to 1.4% of GDP each year over 2012-2015. General
government debt should continue to fall as a share of GDP, with the net
general government debt declining to close to 13.4% of GDP by 2014. However,
we believe China's fiscal position to be somewhat weaker than these indicators
suggest. Local governments in the country owe significant off-budget debt.
Much of these debts belong to enterprises that these lower-level governments
own. The lack of timely and regularly available data, as well as questions
regarding the legal responsibilities of local governments for these debts,
makes external monitoring of such debts extremely difficult.
More generally, the restricted flow of information and lack of transparency in
China lessens support for the government's credit standing. External analysts
are less likely to be able to detect early any developments that affect the
ability of sovereigns to service debt. This makes future trends in key factors
affecting sovereign creditworthiness more unpredictable. It is also difficult
to judge the appropriateness of direct government interventions in the economy
that policymakers rely on for managing the economy. The lack of transparency
could also increase the risks of policy mistakes as the Chinese economy
increases in complexity.
China's average income remains lower than similarly-rated sovereigns. We
consider this another key credit weakness that may exacerbate the impact of
errors in economic policies. Standard & Poor's estimates the Chinese per
capita GDP in 2012 at US$6,141. This measure signals significant inefficiency
in the Chinese economy, making it less resilient to a major shock than a
high-income economy. Large adverse economic or financial developments,
including those related to policy errors, could cause more significant and
prolonged damage to growth prospects than in a more efficient economy.
We equalize the T&C assessment for China with the sovereign foreign currency
rating. This reflects Standard & Poor's opinion that the likelihood of the
sovereign restricting access to foreign exchange needed by China-based
non-sovereign issuers for debt servicing is similar to the likelihood of the
sovereign defaulting on its foreign currency obligations. The interventionist
nature of government policies and the existing foreign exchange restrictions
underlie this opinion.
The stable rating outlook reflects Standard & Poor's view that China can
absorb potential balance sheet losses with little damage to its credit
standing, given its substantial foreign exchange reserves and strong fiscal
position. We may raise the rating if structural reforms lead to a more vibrant
domestic debt capital market, a greater reliance on market-based macroeconomic
management tools, and a more flexible exchange rate. Conversely, we may lower
the rating if reform efforts weaken, in combination with a markedly lower
economic performance and worse banking sector credit metrics than what we
Related Criteria And Research
-- Sovereign Government Rating Methodology And Assumptions, June 30, 2011
-- Methodology: Criteria For Determining Transfer And Convertibility
Assessments, May 18, 2009
China (People's Republic of )
Sovereign Credit Rating AA-/Stable/A-1+
Greater China Regional Scale cnAAA/cnA-1+
Transfer & Convertibility Assessment AA-
Senior Unsecured cnAAA
Senior Unsecured AA-