China's credit rating downgraded for first time since 1989

Beijing 'frustrated' after Moody's takes country from A1 to Aa3 over fears about its financial strength

Xi Jinping, China
(Image credit: Feng Li / Getty)

China's credit rating has been downgraded for the first time in almost three decades, fuelling fears that slowing growth and rising debts will weaken the world's second-largest economy.

Moody's decision to take the country from A1 to Aa3, the same category as the likes of Japan and Israel, has "frustrated" Beijing, says The Guardian.

The downgrade reflected the agency's "expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows", it said.

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China's finance ministry accused Moody's of overestimating the risks facing its economy.

It's the first time China's debt ratings have been cut since 1989, "so it is pretty significant", says Karishma Vaswani, BBC Asia business correspondent.

However, "it is not the first time that international institutions have sounded alarm bells about China's rising debt levels. They have been going off for the past few years".

China's debt-to-GDP ratio is more than 250 per cent, one of the highest in the world, "reflecting attempts by Beijing to continue pump-priming its economy and maintain growth and job creation as millions move from the countryside to make their fortunes in the cities", says Sky News.

Vaswani adds the downgrade "boils down to" whether or not economists believe the Chinese government has the ability to write off this debt.

Moody's has "obviously come down on the side of the naysayers", he says.

The decision could have ramifications beyond increasing the cost of borrowing for Beijing and Chinese state-owned organisations.

President Xi Jinping faces a key political congress towards the end of the year where his political legitimacy and power will be based, in large part, on his economic credibility.

China is also relied upon to be the engine room for global growth at a time when the so-called developed world is struggling to find momentum a decade after the financial crisis.

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