S&P: Reforms Would Support China's Credit Rating

The implementation of reforms that support the decisive role of market forces in the allocation of resources could in turn support long-term sovereign credit ratings on China, Standard & Poor's said in a report on Wednesday.

The Third Plenary Session of the 18th Communist Party of China Central Committee has highlighted the importance for the central government to increase the efficiency of the state sector, according to Standard & Poor's Ratings Services.

"Policymakers are seeking ways to simultaneously maintain a major role for State-owned enterprises in the economy while substantially improving the allocation of resources. Achieving both objectives would require significant changes to ensure that the central government deals at arm's length with the SOEs. This would be a departure from the situation today," said Standard & Poor's credit analyst Kim Eng Tan.

Steps toward securing these goals would include material progress in implementing key governmental reforms, including deregulation, ensuring the rule of law, and establishing a service-oriented government and a modernized fiscal system.

"An increasingly market-driven economy plus a government with better governance could help the country sustain per-capita real GDP growth at above-average rates. At the same time, it would reduce the country's reliance on credit-driven investment spending as a source of economic growth. This could also assimilate the financial risks that have built up over recent years and enable strong credit growth without a systemic impact," said Tan.