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Interview: Moody's China outlook downgrade misses big picture: U.S. experts

Xinhua, March 5, 2016 Adjust font size:

Credit rating agency Moody's decision to downgrade the outlook for China's sovereign bonds missed the big picture and has little impact on financial markets, U.S. experts have said.

"The report fails to recognize that China's economy is not one-faceted," Brendan Ahern, managing director of U.S. financial consultancy KraneShares, said in a recent interview with Xinhua.

Moody's changed China's credit rating outlook to negative from stable earlier this week, citing a weakening of fiscal metrics, a continuing fall in foreign exchange reserves and uncertainty over capability to implement economic reforms.

Ahern said that while China is not immune to the global slowdown, its financial health is in fine shape.

"There is no doubt China's balance sheet is rock solid ... As even Moody's noted, China's fiscal and foreign exchange reserve buffers remain sizeable," he said.

Robert Savage, chief executive officer of CC Track Solutions, said he expects the Chinese economy to be on a path of 6-7 percent annual growth in gross domestic product (GDP) over the next few years.

"I am not concerned that we have a hard landing there," he said. "Nor am I concerned that FX (foreign exchange) reserves are insufficient to counter capital outflows in the moment."

Meanwhile, experts showed optimism toward the ongoing reforms in the world's largest developing economy.

"I have been very impressed by the pace of economic reforms," Ahern said.

He noted that the services sector now accounts for more than 50 percent of China's GDP, while domestic consumption continues to expand, with retail sales growing by nearly 11 percent annually.

"We expect further policy support for domestic consumption during the dual sessions as policy makers should support the strength in domestic consumption," he said. "This support allows supply-side reform to take place as well."

Ahern was referring to the ongoing annual plenary sessions of the National People's Congress and the Chinese People's Political Consultative Conference (CPPCC), the top political advisory body of the country.

Lawmakers and members of the CPPCC table bills and policy proposals at the Two Sessions, which are closely watched by outsiders to better see where China is going.

Experts said the financial markets largely ignored the credit rating outlook downgrade by Moody's.

"I think there is little to no impact from Moody's report in the short term," Savage said.

China's benchmark Shanghai Composite Index on Friday edged up 0.5 percent to build on gains from previous sessions. The yuan has remained largely stable against a basket of foreign currencies lately. It strengthened 128 basis points to 6.5284 against the U.S. dollar on Friday.

"The market's reaction to the cosmetic change in outlook has been non-existent," Ahern said. "Moody's decision was largely symbolic in nature as these concerns have been in the news here in the United States." Endi