Article/Jia Kang of China Economic 50 People Forum
Moody's analysis of China's current situation and the introduction of basic conclusions, in many ways, apply the treatment method of general economies, which is very inappropriate. Moody's downgrade of China's sovereign credit rating is quite questionable.
Jia Kang: Why Moody's downgrade of China is inappropriate Recently, Moody's, one of the major international rating agencies, downgraded China's sovereign credit rating, which has attracted many concerns and may have some adverse effects on Chinese funded institutions that need to issue bonds and finance in overseas markets in the future.
Moody's is one of the three major rating agencies that have objectively formed an oligopoly in the global rating market. Although Moody's has accumulated many years of expertise in information collection and sorting and is worth flaunting, this downgrade of China's sovereign credit rating exposes its lack of deep understanding of China's economic growth Lack of estimation of the potential release trend in deepening the supply side reform, and lack of awareness of the relevant policies of Chinese authorities.
As an emerging market economy in the process of economic and social transition, China is in the transition of economic development stage since 2011, and is expected to reach a new turning point of bottoming out and stabilizing from the downward growth rate year by year. Moody's analysis of China's current situation and the introduction of basic conclusions, in many ways, apply the treatment method of general economies, which is very inappropriate. Moody's downgrade of China's sovereign credit rating is quite questionable.
The prediction of debt balance growth is wrong because of alarmism
Moody's pointed out in the report that China's government direct debt balance will reach 40% of GDP in 2018 and 45% in 2020. This conclusion is on the high side of China's actual situation estimation and future forecast.
At the end of 2016, the actual situation of this indicator in China was that the balance of central government bonds and the balance of local government debt were 12.01 trillion yuan and 15.32 trillion yuan respectively, totaling 27.33 trillion yuan, which is equivalent to 36.7% of the preliminary GDP accounting figure of 74.41 trillion yuan. In the next two to four years, although it is not ruled out that the level of this indicator may rise, as long as we have a clear understanding of the basic policy orientation of the Chinese administration in the management of public debt (national debt, local debt), we can see that government borrowing will be strictly controlled. It is hard to imagine that the balance of China's government debt will rise all the way to 45% of GDP in the next four years - assuming that the average annual growth rate of China's GDP in the next four years is 6.5% (this is the "guaranteed speed" calculated to achieve the goal of "building a moderately prosperous society in all respects"), the GDP scale will reach more than 9.57 trillion yuan in 2020, of which 45% will be 43 trillion yuan in absolute terms, This will be 15.7 trillion yuan higher than the total in 2016. This hypothetical picture of Moody's seems too extreme to be thoughtless and alarmist.
Neglect of China's economic fundamentals and growth
The rating forecast should guide the market behavior with "foresight" and make relevant predictions and judgments in combination with the trend of China's economic fundamentals, which is the key point of rating.
We do not deny that China still faces various challenges and difficulties in leading the new normal of the economy and comprehensively deepening reform, but since the end of 2015, the basic situation of the national economy has emerged, which is unique since the economic downturn in 2011, with a growth rate of more than 6.7% for six consecutive quarters, and a slight increase in the last two quarters. Various economic indicators have been highlighted, On the whole, economic operation is expected to usher in the transition point of "new normal" from "new" to "normal" in the "seeking progress while maintaining stability". This is supported by the huge potential of the Chinese market and the huge growth of the economy and society.
If we see this high probability event that is likely to occur from 2017 to 2018, there is no sufficient reason to underestimate the confidence and determination of the Chinese government administration to control the scale of government debt. At present, Moody's, at this "critical point" that should at least maintain a "wait-and-see" attitude, has given a clear "bearish" direction by adjusting China's sovereign credit rating, which is definitely not its due fair attitude and forward-looking level.
Do not understand the provisions of China's legal system and ignore basic international comparisons
Moody's forecasts and judgments are closely related to its report that China's government contingent debt will continue to grow in local financing platforms and state-owned enterprises, but this just shows Moody's lack of understanding of China's relevant legal construction in recent years. The revised Budget Law of China and the official documents cooperating with it clearly stipulate that local government debt can only be issued in a sunny way through the budget process, and the original local financing platform can no longer incur any disguised borrowing of local governments; In addition, with the support of the Guarantee Law and other laws, the local government and its subordinate departments shall not guarantee the debts of any unit or individual in any way. Therefore, there are no other "contingent liabilities" in general sense in China, except for the guaranteed debts of local governments to use loans from foreign governments or international economic organizations for re lending. Moody's above judgment is very abrupt and difficult to establish in China's practice picture of actively promoting comprehensive rule of law.
To say the least, even if China's government debt balance really reaches the level equivalent to P45% of GDP in 2020, China is still at a low level among the major economies in the world, significantly lower than the warning line of 60% of the EU, and even more different from nearly 100% of the United States and nearly 250% of Japan. Considering China's huge market potential and economic growth, combined with the prospect of deepening the supply side structural reform and the comprehensive risk prevention and control capability of China's economic regulation system, Moody's downgrade of China's sovereign credit rating this time is inappropriate.
(The author of this article introduces: member of the National Committee of the Chinese People's Political Consultative Conference and researcher of the Chinese Academy of Financial Sciences.)
