S&P cuts China's sovereign debt rating to A+

Standard & Poor's cut its rating on China's long-term debt rating following a prolonged period of strong credit growth that has increased the country's financial and economic risks.

The sovereign debt rating was lowered from AA- to A+, albeit with a 'stable' outlook attached.

According to S&P, the latter reflected the likelihood of continued robust economic and fiscal performance over the next three to four years.

Furthermore, over the medium-term Beijing's recently intensified efforts to stop excessive leverage might succeed in "stabilising" the trend in financial risk.

Nonetheless, since 2009 claims "by depository institutions on the resident non-government sector have increased rapidly. The increases have often been above the rate of income growth," S&P said in a statement.

On the upside, such credit growth was a factor behind strong real GDP growth and loftier asset prices, but at the price - to some extent - of "diminished financial stability".

Reacting to S&P's announcement, Mark Williams at Capital Economics said: "the monetary tightening cycle that began in late 2016 also appears to have peaked, so the immediate risk of some form of credit event is probably lower now than a few quarters ago.

"But S&P's broad point is valid. Credit continues to expand faster than output, signalling significant ongoing misallocation of resources. State sector reforms have continued to disappoint and so the hidden risks on bank balance sheets have continued to build. But you didn't need a ratings agency to tell you that these trends were unhealthy."