The decision by ratings agency Moody’s to downgrade China’s credit rating “underscores the immense structural challenges that the Chinese economy faces”, according to Legg Mason Western Asset’s co-head of emerging markets debt, Chia-Liang Lian.
On Wednesday Moody’s downgraded China’s sovereign ratings by one notch to A1, saying that the financial strength of the world’s second largest economy would decline in coming years as growth slows and debt continues to mount.
Noting that market reaction had been muted, Lian said that Moody’s downgrade brings it in line with Fitch which has maintained its China rating at A+ since 2007.
“We believe the Chinese government has sufficient instruments in their policy toolkit to navigate the economic cycle, in a way to promote a more sustainable path over the medium term.
“Recent efforts in tightening market liquidity conditions indicate official acknowledgement of the need to rein in a build-up in economic leverage, the main factor that prompted the downgrade from Moody’s.”
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