China’s Credit Rating Reduced To Negative

I’m not sure if this action by Moody’s as reported on RT is a beat-up or not.  I guess it is intended to signal that China is in trouble.  Is that really the case?

A view of the city skyline from the Zhongfu Building at night in Beijing  © Jason Lee Photo credit: A view of the city skyline from the Zhongfu Building at night in Beijing © Jason Lee / Reuters  

Before I go on, I just want to say what a great photo this is.  The first thing I noticed was the brilliant and vibrant colour and the apparent cleanliness and organisation of the place.  Ok, I know it is probably vastly different in those darkened areas in the background, but even so…  Next I noticed the traffic organisation, on a spectrum from apparent gridlock to pleasant motoring.  Finally, I noticed what looks like a studio backdrop in blue behind the scene.  Are there no mountains in China?  No ground undulations?  Or is that all hidden away in the distance by smog and pollution?  Anyway, it is a very beautiful photograph.

Back to what I was saying.

Is China really in trouble?  Let’s look at what I know, which admittedly isn’t much, and I risk showing my ignorance here.

  1. China has still one of the highest economic growth rates of any nation on Earth (I’m not saying that is necessarily a good thing, in fact you will often hear me railing against growth, but it should be a positive factor in the sort of assessing that the rating agencies do).
  2. China has the highest foreign reserves of any nation at $3.2 trillion, although a year ago they had very much more than that, having used the difference to prop up their currency in the meantime.  Foreign reserves would, I would have thought, have counted for quite a lot in the assessment.
  3. While the United States and China are in a league of their own when it comes to GDP, with the US leading China in Current Price GDP by a considerable amount, China leads the US in Purchasing Power Parity (PPP) GDP by a smaller margin.  I’m not showing off my extensive knowledge here. I only just discovered this by searching  (there are some interesting charts at that link).  And when it comes to GDP growth, which I again would have thought carried some weight in ratings assessments, China is in fourteenth place (from the top), with not a single Western developed nation within a cooee of them on the growth ladder.

So, I recognise that China is at just as much risk of economic collapse as any other nation over the next little while, few years or months, but shouldn’t the facts I have just outlined mean that every other nation, and most nations can not boast economic factors anywhere near as healthy as China can, be relegated to a lower economic rating assessment than China?

Oh, I forgot to include debt in my musings above, but really, is China’s debt any different to any other nation?  Would it make any difference if it were?

 

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