S&P cuts China’s rating outlook

One of the top three global rating agency has cut China’s outlook from stable to negative, increasing the prospects that there could be cut in China’s ratings, over next three months. Currently China’s rating is held at AA-.

According to Standard & Poor,

• China’s economy is likely to expand at 6% or above rate over the next three years, however it expects both government and corporate leverage ratios to deteriorate. China’s overall debt to GDP is already around 230% of GDP.

• It expects interest cost to shore up above 30-35%, what Standard & Poor considering as sustainable.

• It criticized the policymaking communications among central and regional powers, which sometimes lead to abrupt policy implementations.

It has finally warned that China may face a downgrade if policymakers boost or at least try to boost GDP above 6.5% by means of further credit at much faster rate than nominal GDP growth, leading to investment ratio above 40%.

Reaction has been mute as it came after market closing in China. China’s benchmark index, Shanghai composite is up 0.1% today, trading at 3003.

Yuan is currently trading at 6.469 per Dollar, up 0.1% today.