Ratings agency Standard and Poor’s has made a downward adjustment to China’s sovereign credit rating due to concerns over the country’s burgeoning debt levels.
The agency has just reduced the sovereign rating for China by one notch to A+ from AA-, marking the second time this year that a major ratings agency has downgraded the country’s credit standing following similar action by Moody’s in May.
According to S&P total debt in China has quadrupled since the Great Financial Crisis almost a decade ago to reach $28 trillion by the end of 2016, as Beijing endeavours to spur economic growth via credit expansion.
S&P said that while this “prolonged period dog strong credit growth” has proved effective at fostering economic growth, it has also exacerbated financial risk for China.
“Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent,” the agency said.
China launched a concerted crackdown on the banking and finance sector earlier this year in tandem with an economic deleveraging campaign, as part of efforts to shore up stability and forestall systemic risk.
S&P nonetheless expects China’s corporate debt levels to continue to grow over the next several years, further increasing risk levels.
The latest downgrade by S&P puts China’s sovereign credit rating in line with those provided by Fitch and Moody’s, as well as on par with the assessments for the United States and Austria.