S&P cuts China's credit rating, citing debt growth

A man walks through a cloud of dust whipped up by wind at the construction site near newly erected office skyscrapers in Beijing, China April 20, 2017. (Reuters photo)

S&P Global Ratings cut China’s sovereign credit rating by one step, to A+ from AA-, and revised its outlook to stable from negative.

"China’s prolonged period of strong credit growth has increased its economic and financial risks," the agency said in a statement. "Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent."

The downgrade, the second by a major ratings company this year, represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.

The cut will "have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating," said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. "It will affect corporate financing."

Moody’s Investors Service cut its rating on the world’s second-biggest economy to A1 from Aa3 in May, citing similar concerns over economy-wide debt and effects on state finances.