China’s Credit Rating Cut By Standard & Poor’s

Concerns about high debt and slowing growth lead to credit rating change.

Standard & Poor’s credit rating agency has cut China’s credit rating due to growing concerns about slowing economic growth and high debt levels in the communist nation.

The rating was cut from AA- to A+.

As reported by the associated press, “The downgrade added to mounting warnings about the dangers of increasing Chinese debt, which has fueled fears of a banking crisis or a drag on economic growth. Moody’s Investors Service cut its own rating for China in May.”

Here’s what S&P said in a statement on their decision:

“A prolonged period of strong credit growth has increased China’s economic and financial risks. 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.”

Since the 2008 financial crisis, China’s non-government debt as reached a staggering 257% of GDP. That’s up from 143% in 2008.

Of note, one of the key issues with China’s economy has been credit-fuelled growth in industries such as steel and the manufacturing sector. While this distorted China’s economy – leaving them with bloated companies and high debt levels – it also devastated manufacturing and industrial production around the world, including here in Canada.

We continue to pay the price for China’s economic policies (and our weak leaders refusal to effectively counter them to protect Canadian industries and jobs).

Political stress

Despite high debt levels, China’s authoritarian government is reluctant to remove too much credit from the economy. Unlike democratic nations where elections can serve as a safety valve for public anger, China’s authoritarian system represses dissent and relies upon continued high-levels of growth to retain power and legitimacy. It remains to be seen what will happen to China’s communist party if the economy slips even further, or falls into a recession and/or financial crisis.

And yet, at this exact moment, the Trudeau government is seeking free trade with China, which would put Canada even more at the mercy of China’s economy, and cause us to face immense economic and national security risks.

Spencer Fernando