{"id":2357,"date":"2017-05-24T09:12:11","date_gmt":"2017-05-24T08:12:11","guid":{"rendered":"http:\/\/blogg.lnu.se\/china-research\/?p=2357"},"modified":"2017-05-24T19:31:50","modified_gmt":"2017-05-24T18:31:50","slug":"chinas-downgrading-motivated-or-not","status":"publish","type":"post","link":"https:\/\/blogg.lnu.se\/china-research\/?p=2357","title":{"rendered":"China\u2019s downgrading \u2013 motivated or not?"},"content":{"rendered":"

Moody\u2019s has finally downgraded its rating for the People\u2019s Republic of China from Aa3 to A1. For certain people this may have been a surprise, for others not. Anyway, the Chinese certainly do not like this step after all their strong efforts to receive international recognition in the past few years in financial areas as well.<\/p>\n

Moody\u2019s motivates the downgrading by mainly pointing at China\u2019s increasing debt problem (private and governmental) and the worsening outlook for China\u2019s GDP growth. This may be two justified assumptions but they are not necessarily interlinked. The central and particularly the local government-debt problems are well known. On this page and in many more extended pieces I have been singling out myself the lagging transparency of the Chinese debt structure and volumes. Now China has to pay a relatively high price for these long-lasting shortcomings, leading to (somewhat) higher funding costs and declining credibility on financial markets.<\/p>\n

As regards the other motivation of the downgrading, I do not quite share the view of Moody\u2019s that economic reforms really are moving too slowly. This may be the case \u2013 but can we be sure? The Chinese reject such an argument. They may be right. But if Moody\u2019s has committed an error, such an incorrect interpretation may also be based on insufficient transparency by the Chinese. Obviously, Moody\u2019s has already concluded that economic reforms are not strong enough \u2013 at least so far.<\/p>\n

Again: Moody\u2019s may be right \u2013 or not. We still do not know. Because one conclusion can be made for sure: China\u2019s growth has indeed to come down if successful economic reforms shall be implemented to a satisfactory extent. Maybe we can learn more about this during the important National Congress of the Communist Party this fall where a number of new, very important leaders of the Standing Committee of the Politburo will be selected (but not the Chairman and the Prime Minister).<\/p>\n

Improving transparency and the quality of statistics would be good answers to the shrinking credibility of China on global financial markets \u2013 and, of course, even more important \u2013 that decisive economic reforms really take place.<\/p>\n

Today, it\u2019s hard to say whether Moody\u2019s downgrading was premature or not. However, it may serve as a warning signal for the political leadership in China. An accelerated and more efficient economic reform process is still possible! And if analysts in Western countries really have not underestimated progress in Chinese economic reforms, better transparency for Westerners certainly would be an appropriate answer.<\/p>\n

 <\/p>\n

\"\"<\/p>\n

Hubert Fromlet<\/em><\/strong>
\n<\/em>Affiliate Professor at the School of Business and Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n

 <\/p>\n

Back to Start Page<\/a>
\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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