Moody's was wrong to degrade China's rating from Aa3 to A1 on May 24, the country's official Xinhua News Agency argued, citing three reasons and accusing the firm of bias.
Firstly, Moody's predicted that China's government debt would make up 40 percent of its GDP by 2018, and 45 percent by 2020. But the figure for 2016 was 37.6 percent, not much up on 2015, and so this was mistaken, Xinhua argued. The news agency contested that the country's government borrowing will be strictly controlled as supply-side reform is advanced.
Secondly, arguing that China's reform measures will be difficult to deliver results and its economic growth will keep slowing down, Moody’s overestimated the difficulties China's economy is facing and underestimated the Chinese government’s ability to deepen the supply-side structural reform and to moderately expand the aggregate demand, according to Xinhua. For example, the country’s GDP for the first quarter of 2017 grew by 6.9 percent, up 0.2 percentage points year on year.
The growing debt of local governments and SOEs won’t add to the contingent liabilities, according to Xinhua, which said that in accordance with the regulations in the Security Law of China and the Budget Law of China, the contingent liabilities of local governments refer solely to on-lending of funds from foreign government or international economic organizations.
Xinhua also argued the debts borrowed by SOEs, including those under direct supervision of the central government and local ones (or financing platforms), don’t fall under the category of government debt and should be repaid by SOEs themselves.
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