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China’s credit rating cut on rising debt fears

China’s credit rating cut on rising debt fears

Rising debt levels have caused the ratings agency S&P to cut China’s sovereign credit rating to AA-, the first time China’s rating has been cut since 1999.

The agency also cut the credit rating of three Chinese banks, saying they would be unlikely to survive if China defaulted on its debt.

The credit rating agency said: “China’s prolonged period of strong credit growth has increased its economic and financial risks.”

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“Although this credit growth had contributed to strong real gross domestic product growth and higher asset prices, we believe it has also diminished financial stability to some extent.”

A rival credit ratings agency, Moody’s, cut China’s credit rating in May 2017.

China remains an economy, and stock market, about which investors have widely divergent views.

The fund manager Neil Woodford has positioned his portfolios to avoid exposure to mining and other stocks that he believes are reliant on Chinese economic growth. That has, in his view, contributed to the poor performance of several of his funds this year.

The Economist Intelligence Unit said in a report it published on the outlook for China that it expects the government to use its forthcoming plenum, an event which sets the agenda for the government for coming years, to begin to address the rising debt levels.

Andy Rothman, investment strategist at Matthews Asia, said the Chinese government’s stated policy aim of moving to a consumption based economy, rather than a model based on debt and infrastructure spending, is working.

David.Thorpe@ft.com