Average income vital for S&P upgrade
By Zhang Fengming |
April 12, 2011, Tuesday
|
Print Edition
Print Edition
STANDARD & Poor's may raise its ratings on China's sovereign credit if the country's average income level were to grow significantly, the agency said.
S&P rates China's long-term sovereign credit ratings AA-, three notches away from the AAA level. AA means very strong capacity to meet financial commitments.
The latest rating upgrade on China was made on December 16.
China's low average income, measured by per capita gross domestic product, prevents a higher rating.
"The low average income indicates that a sizable portion of the Chinese economy is still inefficient," Kimeng Tan, an S&P credit analyst, said yesterday in Shanghai.
"We may raise the ratings if structural reforms lead to sustained economic growth that significantly lifts the average income level. Conversely, we may lower the ratings if reform efforts slacken, the economy performs weakly and the environment surrounding the banking sector worsens."
The rating agency's stable outlook on China reflects its view that the country can absorb potential balance sheet losses with little damage to its credit standing, given its substantial foreign exchange reserves and strong fiscal position.
China's forex reserves were the world's biggest at US$2.85 trillion at the end of 2010, up an annual 19 percent.
S&P expected property prices and sales to drop by 10 percent in 12 months, on the assumption that China's economy may grow by a slower 8 percent, the 2011 loan growth is likely to ease to 14-16 percent and the rise in interest rate is within 1 percentage point.
The rating agency now rates 40 real estate developers in China. Nine are rated with a negative outlook. Last year, five were so rated.
Also, 39 of the 40 rated developers are rated as high as BB+ within the junk bond category.
China's gross domestic product growth is forecast to moderate this year from a 10.3 percent expansion in 2010, the Asian Development Bank said last week. It said GDP may grow 9.2 percent in 2012.
S&P rates China's long-term sovereign credit ratings AA-, three notches away from the AAA level. AA means very strong capacity to meet financial commitments.
The latest rating upgrade on China was made on December 16.
China's low average income, measured by per capita gross domestic product, prevents a higher rating.
"The low average income indicates that a sizable portion of the Chinese economy is still inefficient," Kimeng Tan, an S&P credit analyst, said yesterday in Shanghai.
"We may raise the ratings if structural reforms lead to sustained economic growth that significantly lifts the average income level. Conversely, we may lower the ratings if reform efforts slacken, the economy performs weakly and the environment surrounding the banking sector worsens."
The rating agency's stable outlook on China reflects its view that the country can absorb potential balance sheet losses with little damage to its credit standing, given its substantial foreign exchange reserves and strong fiscal position.
China's forex reserves were the world's biggest at US$2.85 trillion at the end of 2010, up an annual 19 percent.
S&P expected property prices and sales to drop by 10 percent in 12 months, on the assumption that China's economy may grow by a slower 8 percent, the 2011 loan growth is likely to ease to 14-16 percent and the rise in interest rate is within 1 percentage point.
The rating agency now rates 40 real estate developers in China. Nine are rated with a negative outlook. Last year, five were so rated.
Also, 39 of the 40 rated developers are rated as high as BB+ within the junk bond category.
China's gross domestic product growth is forecast to moderate this year from a 10.3 percent expansion in 2010, the Asian Development Bank said last week. It said GDP may grow 9.2 percent in 2012.
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