BEIJING, Sept 21 (Reuters) - S&P Global Ratings cut China's long-term sovereign credit ratings by one notch to 'A+' from 'AA-' on Thursday, saying its prolonged period of strong credit growth has increased its economic and financial risks.
The outlook on China's long-term rating is stable, S&P said. http://bit.ly/2fdva4Y
The move put S&P's ratings in line with those of Fitch and Moody's.
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* S&P says China's prolonged period of strong credit growth has increased its economic and financial risks
* Says stable outlook reflects view that China will maintain robust economic performance and improved fiscal performance in the next 3 to 4 years
* Says China's credit growth in the next two to three years will remain at levels that will increase financial risks gradually
* Expects China's per capita real GDP growth to stay above 4 percent annually, even as public investment growth slows further
* Says recent intensification of Chinese government efforts to rein in corporate leverage could stabilize trend of financial risk in medium term
IRIS PANG, GREATER CHINA ECONOMIST, ING, HONG KONG
"Corporate credit as a percentage of GDP was 170 percent in February and in August it was 166 pct. Total credit was 262 percent in February and was down to 258 percent of GDP in August. I actually don't think S&P was ... reasonable.
"Why didn't they cut the ratings in February?"
"The impact will be very negative on Chinese sovereign bonds. China was trying to attract more foreign investors to its onshore bond market."
- China's economy has surprised global financial markets and investors by rebounding more solidly than expected so far this year, driven by a renaissance in "smokestack" industries such as steel, a rebound in exports and strong growth in the services sector.
- But analysts say the economy still remains too reliant on debt to drive growth, with bank lending on track for another record year this year and the government ramping up stimulus spending.
- Top leaders have pledged to reduce risks from the rapid build-up in debt, accumulated in large part due to heavy spending in the past to meet official government economic growth targets
- But analysts say China's campaign to reduce financial risks this year has had mixed success so far, and opinions differ widely on whether Beijing is moving quickly enough or decisively enough to avert the risk of a debt crisis down the road.
- Regulators are making significant inroads in reducing interbank borrowing perhaps the most pressing risk - and have curbed some riskier types of shadow banking.
- However, China's economy still remains heavily reliant on credit, and analysts agree more comprehensive structural reforms are needed. Though the pace of credit growth may be easing, new bank lending and total social financing may hit fresh records this year and continue to outpace economic growth.
- A recent Reuters analysis showed corporate debt is growing faster than last year, with few companies using stronger profits to reduce debt. (Reporting by Reuters Asia bureaus; Compiled by Asia Desk; Editing by Kim COghill)