Photo : Chinese Foreign Exchange Reserves by Trading Economics
Moody's Investors Service Wednesday lowered the outlook on China's credit rating from stable to negative, citing a weakening of fiscal metrics and a continuing fall in foreign exchange reserves.
China's foreign reserves fell $99.5 billion in January to $3.23 trillion, the lowest level since May 2012, as the central bank intervened aggressively to prop up its currency. Goldman Sachs reckoned capital outflows in China amounted to $88 billion during that month.
Moody's acknowledged that China's foreign exchange reserves, the world's largest, remained substantial, especially in relation to China's external debt.
But the ratings agency warned that sharp decline in reserves in recent months could still portend further capital outflows if pressure on the yuan persisted and confidence in the ability if policymakers to shore up confidence wavered.
The rating agency also noted uncertainty over the capacity of authorities to implement the reforms needed to address imbalances in the world's second-largest economy.
A downgrade was possible if the reform drive slows, public debt rose and capital outflows accelerated, Moody's said.
Moody's current Aa3 rating on China is seven notches above junk so even if the agency were to follow up on its warning and lower the rating, investors won't have to suddenly start selling the country's bonds.
Rival Standard & Poor's assesses China's creditworthiness at similar levels to Moody's, while Fitch rates China a notch lower. S&P and Fitch both have stable outlooks on the country.
Reference: CNBC, Trading Economics
Read more : http://www.cnbc.com/2016/03/
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