China’s GDP beat forecasts in the first quarter of 2017, coming it at 6.9 per cent [Xinhua]
Chinese markets appeared to shrug off the Moody’s ratings downgrade on Thursday and Friday as they rallied, led by the Shanghai Composite which closed up 1.43 per cent.
Amid media criticism that its ratings assessments are neither objective nor scientific, Moody’s on Friday said that it does not believe the government’s economic reforms will be enough to wholly stop the growing national debt.
Earlier this week, Moody’s downgraded China’s sovereign ratings from Aa3 (very low credit risk) to A1 (stable).
But the market rally continued into Friday largely pushed up by the blue chip CSI300 which closed after having had its best performance in six months.
Market analysts said that Moody’s does not fully understand conditions in China or the government’s reforms.
China’s Finance Ministry called the ratings downgrade illogical and “absolutely groundless”. National media said that Moody’s was applying double standards, with some even hinting at a colonialist mentality to rating non-Western countries.
On Friday. Moody’s acknowledged that China has made progress in its reforms to control debt but said that these measures will slow debt and not sufficiently eradicate it.
The agency warned that there could be another downgrade soon.
But Kenneth Kim, a Chief Economist and Chief Financial Strategist for US-based EQIS, a Turnkey Asset Management Platform, says that Moody’s may have it wrong on China.
Writing for Forbes, he says Moody’s erred in four key areas of its China downgrade.
He particularly takes stock of Moody’s statement that China’s financial sector is not growing.
“This is a shock to me. China’s financial sector is growing. They have many more national commercial banks and provincial commercial banks than 10 years ago,” he writes in Forbes.com.
While Moody’s warned of GDP growth slowing, China appears to be beating expectations.
Growth for Q1 of this year came in at 6.9 per cent beating forecasts of 6.5 per cent, according to the National Bureau of Statistics.
The BRICS Post with inputs from Agencies
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