China insists economy stable after S&P lowers outlook

[BEIJING] China on Friday shrugged off a decision by ratings agency Standard & Poor's (S&P) to cut its outlook on the country to negative, calling on the firm to be "objective".

S&P cut its outlook from its previous assessment of "stable" on Thursday, warning that economic rebalancing away from investment towards services was taking longer than expected.

Chinese foreign ministry spokesman Hong Lei said on Friday that the country was "in the process of economic transformation" and that economic fundamentals were stable.

"We hope the relevant organisation can have a comprehensive understanding of China's economic development, and make an objective judgement," he added at a regular briefing.

Beijing posted its slowest economic growth in a quarter century last year as it grappled with a tough transition away from dependence on heavy industries toward a consumer-driven growth.

Fluctuations in the exchange rate and stock markets last summer and slow progress on market reforms in state-dominated sectors undermined confidence in leaders' willingness to push for change.

S&P kept its rating on Chinese sovereign bonds unchanged at AA-/A-1+.

The firm said that it could downgrade Chinese government bonds this year or next if Beijing opens the credit floodgates and pushes investment to above 40 per cent of GDP in order to meet ambitious growth targets.

S&P joined fellow ratings agency Moody's, which cut its outlook on Chinese sovereign bonds earlier in March, citing increasing capital outflows and rising debt.

After the Moody's downgrade the official news agency Xinhua carried a commentary criticising the "short-sightedness" of Western ratings agencies, claiming they lacked credibility.

Ratings agencies assess debtors' ability to pay back debts.

A Chinese Communist Party member founded the country's main ratings agency, Dagong, some 20 years ago, but it has struggled to win international support.

The so-called big three agencies - S&P, Moody's and Fitch - were widely criticised for having given their highest ratings to debt instruments whose failure helped spark the global financial crisis in 2008.

AFP