China dismisses Moody's downgrade as "inappropriate"

China dismisses Moody's downgrade as

China's financial health will "erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows", the rating agency said in a statement.

The credit rating agency warned that the financial strength of the world's second-biggest economy is likely to deteriorate in the coming years as growth slows and national debt continues climbing.

As a outcome, Moody's expects the government's direct debt burden to rise slowly towards 40% of GDP by 2018 and closer to 45% by the end of the decade, while other fiscal risks will rise from issues including high levels of off-book local government borrowing.

The company also noted that the importance the Chinese authorities have attached to maintaining robust growth will result in sustained policy stimulus, and such government spending will contribute to rising debt across the economy.

The Chinese finance ministry dismissed the credit downgrade in a statement, saying that Moody's was overestimating threats to its economic growth.

Chinese economic growth has slowed significantly over the past years, from double digit GDP growth of 10.6% in 2010 to 6.7% in 2016 - the weakest level growth since 1990.

On the debt front, China's total and private debt is reported to be worth more than 250 per cent of GDP.

More news: Asean, China move to next stage on South China Sea negotiations

The outlook for China was changed from stable to negative.

China's total outstanding credit surged to 260 per cent of gross domestic product (GDP) by the end of a year ago and the International Monetary Fund has warned that a debt crisis in the country could "imperil global financial stability".

Chinese economic growth fell from 14.2 percent in 2007 to 6.7 percent a year ago, though that still was among the world's strongest.

This was a good week for Moody's to express its concern about China's mounting debt in credit downgrades: concern about China's weakness subsided as commodity prices stabilized over the past two weeks.

Mei added that the China downgrade amounted to a "double standard" compared with how countries in Europe and the United States were treated. Moody's rating places China on par with countries such as Japan, Saudi Arabia and Estonia.

Moody's also cast doubt on the effectiveness of China's reform plans, although it said the government's commitment was "clear". S&P has had China on outlook negative since February 2016, indicating there is a potential downgrade brewing.

According to China's laws on guarantee and budget, local government contingent liabilities include no more than the guaranteed debt they issue using loans from foreign governments or global organizations.

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