China's Credit Rating at Risk Due to Weak Economic Recovery, S&P Global Warns

As S&P Global issued a warning about China's credit rating, it highlighted potential risks that could lead to a downgrade if the country's economic recovery falters or relies heavily on extensive stimulus measures.

Previous Downgrade

In 2017, S&P downgraded China's credit rating, while Moody's also indicated a possible downgrade in December, expressing concerns about the need for Beijing to bail out more local governments following a property market crash.

Analyst's Perspective

S&P analyst Kim Eng Tan emphasized the necessity for a more optimistic outlook for China, which would facilitate economic revival and alleviate fiscal pressures. Tan explained that S&P's A+ stable credit score currently factors in the anticipated improvement, but if this progress is significantly delayed, a negative rating action could be imminent.

Future Outlook

Tan cautioned that if the expected improvement in China's economy is postponed beyond the next year or two, S&P may have to adjust the credit rating downward. While Tan acknowledged the mixed signals, he also noted a decent chance for a substantial economic rebound within the year.

Stimulus Impact

If the projected rebound requires more stimulus than planned, there is a likelihood of a negative rating action due to a faster increase in China's debt. This would be reinforced by the implications of a higher level of credit default swap markets, indicating a series of Chinese rating downgrades since 2022.