China hits out at 'inappropriate' downgrading of the country's credit rating for the first time in 30 years

May 24, 2017 8:00 AM

China's sovereign credit rating has been downgraded for the first time in 30 years amid surging debt.

Moody's ratings agency on Wednesday cut China's credit level prompting protests by Beijing. 

The downgrade adds to warnings about China's reliance on credit to propel growth after the 2008 global financial crisis.  

China's sovereign credit rating has been cut down for the first time in 30 years (File photo)

The downgrade adds to warnings about China's reliance on credit to propel growth

Moody's Investors Service cut Beijing's long-term local currency and foreign currency issuer ratings by one notch to A1 from Aa3. 

The outlook has changed from 'stable' to 'negative'.  

It said that China's financial strength is likely to erode as growth slows and debt will rise further. 

The cut highlights the challenges faced by communist leaders as they try to overhaul a slowing economy. 

In a statement, Moody's said: 'We expect direct government, indirect and economy-wide debt to continue to rise, signalling an erosion of China's credit profile.'  

Chinese state media has lashed out at the decision calling it 'inappropriate'. State-run Xinhua complained Moody's overestimated Beijing's industrial reform and financial strength. 

A finance ministry statement accused Moody's of using 'inappropriate methods' that it said gave a false picture of China's financial outlook.

The ministry complained Moody's failed to give enough weight to economic reforms. 

In this photo taken Tuesday, May 23, 2017, Chinese women past by a poster with the word "The New Normal" at a art district in Beijing, China

In this photo taken Tuesday, May 23, 2017, a worker install light bulbs at a cafe undergoing renovation in Beijing, China

'Moody's point of view shows that some international institutions lack the necessary understanding of our legal system,' said the statement. 

The announcement from Moody's has triggered a sell-off in Chinese stocks. The country's market benchmark, the Shanghai Composite Index declined 0.6 percent by midday. 

China's leaders have cited reducing financial risk as a priority this year. They have launched initiatives to reduce debts owed by state companies including by allowing banks to accept stock to repay loans. 

However private sector analysts say they are moving too slowly. 

Chinese economic growth fell from 14.2 percent in 2007 to 6.7 percent last year, though that still was among the world's strongest.

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