A day after a Chinese agency downgraded U.S. sovereign debt Moody’s announces that it has raised China’s debt rating.
Moody’s Investors Service increased China’s debt rating to Aa3 from A1 with a positive outlook. Moody’s cited China’s financial strength and ability to contain losses from a credit boom.
Moody’s also based the upgrade on the lack of erosion in central government financial credit fundamentals and the strength of China’s external payments position.
China’s capital controls will help to stem destabilizing capital inflows, and the trade and currency regime tensions between China and the U.S. will be constructively managed, Moody’s said.
Just a year ago, Moody’s changed its outlook on China’s debt to positive from stable. Tome Byrne, the agency’s senior vice president said this:
The record of the past year demonstrates that China’s policy response to the 2008 crisis has been effective. Real GDP growth initially rebounded rapidly in response to the stimulus measures, and is moderating to a more sustainable rate of growth, which seems likely to be around 9-10 percent this year, and perhaps 8-9 percent in 2011.
In short, Moody’s is impressed with what China’s been able to do in the last year. In fact, it’s much more impressed than China’s biggest rating agency is with U.S. debt.
Yesterday I reported that Dagong downgraded U.S. debt from AA to A+ saying the drop “reflects its deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment.” Dagong is particularly perturbed by the Fed’s QE2 program and says the policy “will be proven to be a practice resembling drinking poison to quench thirst.”
Interesting choice of words.
Dagong’s chairman has also had a few harsh words about American credit agencies like Moody’s. Guan Jianzhon has basically thinks U.S. rating agencies are a joke and told the Financial Times this summer that the firms “dont adhere to objective standards.”
I wonder if those feelings still stand now that Moody’s has uppped China’s ratings.