Rating agency Standard & Poor's on Thursday raised its long-term foreign and local currency sovereign credit ratings citing substantial foreign exchange reserves and strong fiscal position.
The rating was raised to 'AA-' from 'A+'. The outlook was maintained at "stable."
"The upgrade reflects a positive revision in Standard & Poor's assessment of the risks to China's macroeconomic and financial stability," S&P credit analyst Kim Eng Tan said.
The sovereign credit ratings on China reflect the government's modest indebtedness, a strong external asset position, and S&P's view of the economy's exceptional growth prospects.
However, these strengths outweigh sizable contingent liabilities in the banking system that could materialize if an extended economic slowdown unfolds. Moreover, policymakers' continued reliance on administrative tools for macroeconomic management also cause credit weakness.
"We believe the Chinese authorities would respond to future threats to financial stability with timely measures, based on our observations over the past two years," Tan said.
The stable rating outlook on China's ratings reflects S&P's view that Beijing can absorb potential balance sheet losses with little damage to its credit standing, given its substantial foreign exchange reserves and strong fiscal position.
The rating agency said it may further raise China's ratings if structural reforms lead to sustained economic growth, significantly lifting the average income level. Conversely, a weakening in reform efforts together with a markedly weaker economic performance and worsening banking sector credit metrics could led to a rating downgrade.
S&P also affirmed its short-term ratings at 'A-1+' and revised its transfer and convertibility assessment on China to 'AA-' from 'A+'.
Fellow rating agency Moody's Investors Service on November 11 upgraded the Chinese government's bond rating to Aa3 from A1, while maintaining its positive outlook. Fitch rates China's long-term foreign currency issuer default ratings at 'A+'.
Following China upgrade, the rating agency raised its credit ratings on Hong Kong citing the government's accumulated fiscal reserves and above-average growth potential.
Hong Kong's ratings were raised to 'AAA' from 'AA+'. The outlook is stable. At the same time, S&P affirmed the 'A-1+' short-term rating.
"We believe that the upgrade of China and Hong Kong's excellent credit metrics support the Special Administrative Region's creditworthiness at the highest rating level of 'AAA'," Tan said.
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