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Low income gets in China's way for higher S&P rating
By Zhang Fengming |
April 11, 2011, Monday
|
Online Edition
Online Edition
STANDARD & Poor's may raise ratings on China' sovereign credit outlook if the country's average income level grows.
The rating firm gave China AA- on long-term foreign currency rating, three notches below the AAA rating.
The low average income, measured by per capita GDP, deprived China of a higher rating.
"The low average income indicates that a sizable portion of China's economy is still inefficient," said Kimeng Tan, senior director of Standard & Poor's, today 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 weaken, in combination with a markedly weaker economic performance and worsening banking sector credit metrics than what we currently expect."
The rating firm's stable outlook on China reflects its 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.
China's foreign exchange reserves topped US$2.85 trillion at the end of 2010 as the world's biggest, up 19 percent from 2009.
Tan said Chinese banks are unlikely to suffer heavy credit costs in the event of a large price correction.
The rating firm gave China AA- on long-term foreign currency rating, three notches below the AAA rating.
The low average income, measured by per capita GDP, deprived China of a higher rating.
"The low average income indicates that a sizable portion of China's economy is still inefficient," said Kimeng Tan, senior director of Standard & Poor's, today 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 weaken, in combination with a markedly weaker economic performance and worsening banking sector credit metrics than what we currently expect."
The rating firm's stable outlook on China reflects its 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.
China's foreign exchange reserves topped US$2.85 trillion at the end of 2010 as the world's biggest, up 19 percent from 2009.
Tan said Chinese banks are unlikely to suffer heavy credit costs in the event of a large price correction.
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