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A major international agency maintained its positive outlook on China's sovereign credit rating but warned that the ongoing European debt crisis could still risk the granting of an upgrade.
Moody's Investor Service granted a positive outlook in 2010 and kept it on Monday. Moody's typically has a two-year time frame for making a ratings move after issuing an outlook.
Moody's said its outlook reflected China's long-term fiscal and growth trends that were "supportive" of a higher rating.
Cooling inflation also favors more scope for monetary policies to spur the economy, said Tom Byrne, Moody's senior vice-president and director of analysis for sovereign risk in Asia and the Middle East, on Monday.
The ratio of government debt to GDP could decline to somewhere between 30 to 35 percent ,from more than 40 percent at present, he said.
Moody's changed its outlook on China's sovereign credit rating of A1 to positive in November 2009. One year later, it upgraded the rating to Aa3 with a positive outlook, the fourth-highest out of 10 investment-grade rankings.
It is the only one of the three biggest credit-rating agencies with a "positive outlook", an indication the rating may be raised, according to Bloomberg.
The economy's fundamentals provide the basis for sustained and strong growth and prospects are good for further improvement in its credit profile, Byrne said.
Challenges from the 2008 to 2010 credit boom remain, but the economy has the fiscal and monetary space to offset such downside pressures, he added.
According to results of Moody's two bank stress tests, covering the next 18 months, the impact of deteriorating asset quality on the capitalization of lenders would be well contained even if GDP growth slowed to about 7 percent, with the non-performing loan ratio rising to 6 to 9 percent.
The world's second-largest economy is loosing steam as GDP growth rate declined to 8.1 percent in the first quarter, the slowest rate in almost three years.
The Purchasing Managers' Index fell to 48.7 in May from 49.3 in April, signaling further slowdown.
And new challenges are arising externally as the drop in demand from Europe hits exports and economic activity, while trade tensions with the US are an aggravating factor.
Export competitiveness is also under pressure from rising wages and yuan appreciation, Byrne said.
Questions:
1. What outlook did Moody’s grant in 2010?
2. What is the typical time frame of Moody’s ratings?
3. What did China’s GDP growth rate decline to?
Answers:
1. A positive one.
2. 2 years.
3. 8.1 percent.
About the broadcaster:
Emily Cheng is an editor at China Daily. She was born in Sydney, Australia and graduated from the University of Sydney with a degree in Media, English Literature and Politics. She has worked in the media industry since starting university and this is the third time she has settled abroad - she interned with a magazine in Hong Kong 2007 and studied at the University of Leeds in 2009.
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