S&P affirms China ratings, tips 6% growth through to 2018

BEIJING - Standard and Poor’s believes that over the next two to three years China will lower its reliance on credit-driven investment spending to maintain a strong economic performance. S&P today affirmed its 'AA-/A-1+' sovereign credit ratings and 'cnAAA/cnA-1+' Greater China regional-scale ratings on China.

S&P said the ratings reflect its view of the Government's reform agenda as well as China's growth prospects and strong external metrics. “We weigh these strengths against certain credit factors that are weaker than what is typical in similarly-rated peers, such as China's lower average income, lesser transparency, and more restricted flow of information,” S&P said.

“The Chinese Government is taking steps to bolster its economic and fiscal resilience. Most importantly, we view the Government's anti-corruption campaign as a significant step to improve governance at State agencies and State-owned enterprises (SOEs).

“Over time, this could translate into greater confidence in the rule of law, improvements in the private-sector business environment, more efficient resource allocation, and a stronger social contract.”

S&P said the Chinese Government had made significant reforms to its budgetary framework and to the financial sector. “It also appears to be signalling that its support for commercially-oriented SOEs will be more limited, as the bond default by the SOE, Baoding Tianwei, earlier this year demonstrated.”

S&P expects China's economic growth to remain strong at 6% or more annually through to at least 2018, corresponding to 5.5% per capita real GDP growth.

“By 2018, we project per capita GDP to rise to more than US$9,000 from an estimated US$7,900 for 2015. In the next three years, we expect final consumption's contribution to economic growth to increase, resulting in the gross domestic investment rate falling below 40% of GDP. We also expect credit in China to grow roughly in line with the nominal GDP over this period.

“China's external profile remains its key credit strength. It is a large external creditor; we expect financial assets held by the public and financial sectors to exceed total external debt by approximately 125% of current account receipts (CAR) at the end of 2015.

“At the same time, we estimate that the country's total external assets exceeded its external liabilities by 96% of its CAR. China's external liquidity position is equally robust.

“The increasing global use of the renminbi also bolsters China's external financial resilience, in our view.” www.standardandpoors.com (ATI).