Belfast Telegraph

Moody's downgrades China's credit rating amid debt and growth fears

China's credit rating has been slashed by Moody's for the first time since 1989 amid fears of ballooning debt levels and slowing growth.

The downgrade - the first by Moody's since the aftermath of the Tiananmen Square protests nearly 30 years ago - prompted Beijing to accuse the ratings agency of "inappropriate methods" and triggered an initial sell-off in Chinese stocks.

The Shanghai Composite Index declined nearly 1% by the mid-session in Asian trading, but markets worldwide soon shrugged off the downgrade, with the FTSE 100 Index in London edging up 0.2%.

Moody's warned China's financial strength will "erode somewhat" as growth slows and said its debt will continue to surge.

"We expect direct government, indirect and economy-wide debt to continue to rise, signalling an erosion of China's credit profile," Moody's said in a statement.

The downgrade adds to concerns over China's reliance on credit to propel growth since the 2008 global crisis.

But the Chinese finance ministry hit back at the Moody's decision, claiming it gave a false picture of China's financial outlook.

The ministry said in a statement: "It overestimates the difficulties facing the Chinese economy and underestimates the government's ability to deepen supply-side structural reform and appropriately expand overall demand."

China's total non-government debt is estimated to have jumped to 260% of gross domestic product in 2016, from 170% in 2007.

Meanwhile, growth in the world's second largest economy has dropped from 14.2% in 2007 to 6.7% last year.

The Chinese finance ministry insisted the country's growth rate had edged up to 6.9% in the first quarter of 2017.

Moody's expects economic growth to decline to close to 5% over the next five years.

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