Moody’s downgrades China’s credit-rating outlook to negative.
Note – this is internal debt situation – I have commented on this Ad Nauseam and more recently here.
China’s surging debt burden has to be addressed and all Moody’s has done is questioned the government’s ability to implement reforms necessary.
“The government’s financial strength may come under pressure if it takes on liabilities from troubled state-owned companies, while capital outflows have limited policy makers’ scope to stimulate the weakest economy in a quarter century.”
China’s intervention in equity markets – that big stick that does not stem the collapse in the SHCOMP having dropped 23 percent this year.
Plus the intervention in the foreign-exchange markets has heightened uncertainty about the leadership’s commitment to reforms.
“The government’s ability to absorb shocks has diminished and we want to signal this in the negative outlook,” Marie Diron, a senior vice president at Moody’s, said in an interview on Bloomberg Television. Authorities “have stepped backward in their reform steps and so that is creating some uncertainty.”
Yes stepped backwards – from the necessary economic reforms – the Government has instead increased the available liquidity into the domestic markets – more debt in a vain attempt to shore up the ailing manufacturing- export industry.
This is very loose monetary policy – in contrast to what should be undertaken- it is a complete about face from what I had expected from the Government – they have the whereforall in the brains trust to implement the changes – but for some reason digressed into a loose monetary approach which is doomed to fail.
On the currency front – technically they should just float the Yuan – get off the USD peg and allow the foreign exchange markets to dictate the value – instead they intend to fix the price to a ‘basket of currencies’ – this for such a large economy is in itself a very interesting evolution.
A long and windy road – against a backdrop of carpetbaggers and hedge funds – shorting shit out of the currency.
Full story can be read at Bloomberg