S&P downgrades China's credit rating, citing heavy debt load

S&P downgrades China's credit rating, citing heavy debt load

The downgrade, from AA- to A+, is the second by an global rating agency this year.

China's credit rating has been downgraded by Standard & Poor's amid fears rising debts are adding to economic and financial risks. The outlook on the long-term rating was stable.

China's debt binge has unsettled one of the world's top credit ratings agencies.

The Chinese government has been expanding the economy as it pushes to double its size between 2010 and 2020, and has allowed non-financial sector debt to rise rapidly.

The analysts said recent intensification of Chinese government efforts to rein in corporate leverage could stabilize trend of financial risk in medium term.

While the credit growth has fuelled China's economic expansion and high asset prices in recent years, "we believe it has also diminished financial stability to some extent", the agency said.

Further, S&P still sees China's external profile as a key credit strength, despite the recent decline of foreign exchange reserves.

S&P said China's prolonged period of strong credit growth has increased its economic and financial risks, and that its stable outlook reflects the view that China will maintain robust economic performance and improved fiscal performance over the next three or four years, but, its financial risk will steadily grow.

Ratings changes typically cause ripples rather than waves, Mark Williams at Capital Economics said. Economists, investors, the International Monetary Fund and even China's central bank chief have been warning about it for years.

He noted that the timing was "awkward", coming just ahead of the country's important Communist Party congress next month, when President Xi Jinping is expected to be given a second five-year term as head of the party.