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Moody's Says China's Current Account Position To Pose Risk To Stability

China current account deficit is likely to move into structural deficit over the next decade, posing risks to financial stability and credit quality, Moody's Investors Service said Wednesday.

In a new report released today, Moody's said the credit implications will depend on the size of the deficit and how it is financed.

According to Moody's assessment, the current account will move into deficit of around 1.5 percent of GDP by 2030 from a surplus of about 10 percent of GDP in 2007.

"While not our core expectation, the emerging deficit could weigh on the sovereign's credit profile if it occurs faster than we currently expect and/or combines with some capital outflows," Martin Petch, a Moody's vice president and senior credit officer, said.

The overall risk to financial stability remains low. However, over the medium to long term, the agency forecasts that China's rapidly ageing population and persistent trade barriers will impair the country's capacity to generate savings large enough to finance economy-wide debt at low and stable costs.

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