Thursday 28 Mar 2024
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China has been assigned a global sovereign rating of AA3/stable and an Asean rating of AAA/stable respectively by RAM Rating Services Sdn Bhd.

“The ratings are premised on China’s strong economic fundamentals and growth momentum, commitment to market reforms and superior external strength,” RAM said in its Feb 26 press statement. 

But the rating agency noted that these positives are moderated by the country’s highly leveraged economy, substantial sovereign contingent liabilities, and risks of a disorderly correction of the property sector and its implications on economic growth, employment and financial stability.

RAM’s head of sovereign ratings Esther Lai said, “While China’s investment-led growth model had sustained strong gross domestic product expansion for an extended period in the past, it also created economic imbalances that pose risks to long-term growth sustainability, which necessitated an economic rebalancing agenda to realign the economy towards a more balanced, consumption-led growth path.”

China’s external strength is underlined by its net external creditor position, its accumulation of the world’s largest foreign reserve holdings, US$3.8 trillion or 40.6% of GDP in 2013 and a light external debt load, RAM noted.

While China’s augmented fiscal deficit of 10.1% of GDP as at end-2013 was much higher than that of its peers, its augmented debt load stood at a manageable 53.7% of GDP, still allowing space to fund the nation’s fiscal deficit.

“Nonetheless, the Chinese government is exposed to substantial contingent risks, mainly stemming from the liabilities of government-linked entities (GLEs) that amounted to 101% of GDP,” RAM said.

The crystallisation of these liabilities could either directly impact the government’s balance sheet or indirectly through state-owned banks, which have a sizeable lending exposure to GLEs, it added.

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