Debts high in some sectors, but risks under control: experts
U.S. credit rating agency Moody's downgraded its outlook for 38 of China's State-owned enterprises (SOEs) to "negative" on Thursday, following its decision to change its outlook on the country's sovereign credit rating from stable to negative on Wednesday.
The agency also lowered the outlook for 25 Chinese non-insurance financial institutions from stable to negative, according to a statement posted on Moody's website Thursday.
Most of the 38 SOEs are in the power and railway industries.
The downgrade showed Moody's concerns about problems in China amid the current complicated economic context, but the agency still has confidence in the country's economic development, foreign ministry spokesman Hong Lei told a briefing Thursday.
Experts said that the rating downgrade reflects some of the issues that have emerged during the process of domestic companies' industrial restructuring.
Some firms have been operating poorly since the country's economy came under downward pressure, Wang Jun, deputy director of the Department of Information at the China Center for International Economic Exchanges, told the Global Times on Thursday.
Chen Fengying, a research fellow with the China Institutes of Contemporary International Relations, echoed Wang's view, saying that some domestic companies have greater debt burdens than those in the U.S. or other developed countries due to rising labor costs, and high financing costs and tax burdens.
"For instance, companies in the railway industry are loaded with debts," Chen told the Global Times on Thursday.
But there is no need to overreact to the rating, as it will not have much effect on the nation's economy, Wang noted.
"When the SOEs make profits and as GDP continues to grow, the ratings will be back to stable," Wang said.
Risks under control
Although some issues exist in the SOE restructuring process, the risks are generally under control, experts said.
The sluggish economy has affected domestic financial institutions, whose bad loan ratio rose for the 16th consecutive quarter as of December 2015, said Gao Bei, a specially invited research fellow with the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.
But many measures have been rolled out by the government to deal with nonperforming assets, Gao told the Global Times Thursday.
Moody's has some "misunderstandings" about its rating for Chinese government debt, news portal people.com.cn reported Thursday, citing an expert.
Investment makes up a large part of government spending in China, which makes domestic government debt different from that in Western countries, because most of the debt has corresponding assets, the report said.
Moreover, the government has allowed debts to expand in a bid to prevent deflation caused by capital outflows, the report noted.
The government has supported its citizens in holding foreign reserves, in order to diversify external assets, the report said, adding that although the country's foreign reserves have decreased in the past year, they are still the highest in the world.
Chinese credit rating agency Dagong Global Credit Rating Co maintained its outlook on domestic and international currency at "stable," domestic media reports said Wednesday night.
The nation is going through an industrial restructuring process, which supports the sustainable development of China's economy, and the government has set several targets including tackling overcapacity and high inventories, while also lowering costs, and curbing leveraging, the Chinese credit rating agency said.
China's GDP growth could reach 7.0 percent during the 13th Five-Year Plan (2016-20), Dagong forecast.
The economy still has relatively strong growth potential, Wang said. "The [Moody's] rating is a warning, but not a worrying sign," he noted.