May 25, 2017 / 2:06 AM / 2 months ago

Moody's China downgrade 'illogical', overstates debt: People's Daily

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FILE PHOTO: A female migrant construction worker walks into her dormitory near newly-built residential apartments in Shanghai August 12, 2013.Aly Song/File Photo

SHANGHAI (Reuters) - The decision by Moody's Investors Service to downgrade China's credit rating is "illogical" and overstates the levels of government debt, a commerce ministry researcher said in an editorial in the official People's Daily newspaper on Thursday.

Mei Xinyu, a researcher at China's Ministry of Commerce, wrote in a front page editorial of the paper's overseas edition the downgrade, Moody's first for China since 1989, overstated China's reliance on stimulus and the country's debt levels.

Moody's downgraded China's credit ratings on Wednesday for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.

China's Finance Ministry said on Wednesday the downgrade overestimated the risks to the economy and was based on "inappropriate methodology". China's state planner said debt risks were generally controllable.

Mei said China's economic performance this year had exceeded market expectations and criticized Moody's for including debt at state-owned enterprises (SOEs) and local government financing vehicles as indirect government liabilities.

"It is clear to see that the logic behind Moody's assertions goes against the objective facts," he wrote.

Moody's one-notch downgrade in long-term local and foreign currency issuer ratings, to A1 from Aa3, comes as the Chinese government grapples with the challenges of rising financial risks stemming from years of credit-fueled stimulus.

Chinese leaders have identified the containment of financial risks as a top priority this year, but are moving cautiously to avoid choking economic growth. The authorities have gingerly raised short-term interest rates while tightening regulatory oversight.

Mei added that the China downgrade amounted to a "double standard" compared with how countries in Europe and the United States were treated. However, the decision would not have a major impact on the Chinese economy, he said.

The downgrade is likely to modestly increase the cost of borrowing for China's government and SOEs, but it remains comfortably within the investment grade rating range.

Reporting by Adam Jourdan and Samuel Shen; Editing by Jacqueline Wong

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