China’s credit score gets a downgrade, most analysts yawn – China’s latest top news

Jeremy Goldkorn’s selection of the top stories from China on September 21, 2017. Part of the daily SupChina newsletter, a convenient package of China’s business, political, and cultural news delivered to your inbox for free. Subscribe here.

China gets an A+, and that’s not a good thing

Standard and Poor’s (S&P), one of the world’s “Big Three” credit-rating agencies that evaluate countries and companies by the risk of investing in them, has downgraded its score for China from AA- to A+, one notch lower. Moody’s, one of the other Big Three, gave China a similar downgrade in May. By comparison, the U.S. has a rating of A++, while South Africa is at BB+, which is the highest classification for a deadbeat debtor, sometimes called “junk” status.

  • The New York Times says (paywall) that S&P explained that China’s “strong economic growth has been fueled by heavy borrowing — and that it expects that borrowing to continue,” which could lead to long-term growth problems and exacerbate future financial shocks.
  • The Times notes that the earlier downgrade by Moody’s “infuriated the Chinese government,” and that they are likely to be “particularly upset” with S&P as the downgrade was issued less than a month before the 19th Party Congress.
  • Bloomberg has published a piece titled “Why S&P’s first China downgrade since 1999 is good news for bulls.” This is the logic: “With the credit assessor cutting the nation’s rating less than a month before the start of a twice-a-decade Communist Party congress, Chinese officials have even more motivation to keep financial markets buoyant.”
  • A different Bloomberg article says that “China’s latest rating cut won’t take away the punch bowl, and investors are likely to keep lapping up debt of the nation’s companies at an unprecedented pace.”

Reuters has a report on the S&P downgrade that quotes a number of analysts and investors. Some excerpts:

  • “China’s credit problem is the biggest problem we have ever seen in any country… All that is an argument to say China’s rating might still be too good.” —Claire Dissaux, Millennium Global Investments, London
  • “I, personally, think that they are not with their back against the wall. They have some room for maneuver.” —Louis Kuijs, Oxford Economics, Hong Kong
  • “You cannot use standards in a developed, fully market-oriented economy, to rate China, which has its unique growth model and political structure.” —Zheng Lianghai, Dongxing Securities, Shanghai
  • Shouldn’t be much impact judging from the market reaction following the Moody’s downgrade a few months back. China’s domestic bond market is largely onshore driven.” —Khoon Goh, ANZ, Singapore
  • “They’re playing catch-up, but the risks that they’re talking about are real ones and they are risks that investors have been considering for quite some time…You don’t need a ratings agency to tell you that this trend is unhealthy.” —Mark Williams, Capital Economics, London
  • “The impact will be very negative on Chinese sovereign bonds. China was trying to attract more foreign investors to its onshore bond market.” —Iris Pang, ING, Hong Kong

Illustrated wok

The Cleaver Quarterly, a magazine about Chinese food and cooking, has a new project: a book of 40 recipes from well-known chefs of Chinese cuisine, each hand illustrated with specially commissioned art. The trouble is, they haven’t actually published the recipe book yet: if you want one, go support them on Kickstarter.