China Retains Sovereign Credit Ratings, Outlook Stable

At least one very large nation has managed to keep its credit rating at current levels. S&P released a report that affirmed the AA- long-term and A-1+ short-term sovereign credit ratings on the People's Republic of China. S&P said its outlook for the country is "stable." According to S&P:

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," said Standard & Poor's credit analyst Kim Eng  Tan. "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.

One observation in the report is unexpected. China's growth rate, at 7.3%, is so low compared to past levels that the consequences to consumer spending may be much greater than S&P expects. China will need to rely on an increase in the size and wages of its middle classes. Muted growth could undermine that.

Douglas A. McIntyre


Filed under: 24/7 Wall St. Wire, China

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