* Moody’s makes no change to Aa3 rating in new China report
* Report says ample fiscal headroom to manage financial
risks
* Says financial reform needed to underpin growth prospects
BEIJING, April 26 (Reuters) – China’s sovereign rating
outlook remains positive, supported by favourable medium-term
growth prospects and strong government debt dynamics, Moody’s
Investors Service said in a report on Thursday.
The ratings agency made no change to its Aa3 foreign and
local currency bond ratings in the report, but said Beijing must
retain tight control over local government finances and make
reforms in the financial system to ensure rapid and stable
economic growth for the rest of the decade.
“Rapid economic growth, coupled with low deficits and debt
of the central government, have provided ample fiscal headroom
to manage contingent risks in local government finances, or in
the banking system,” Moody’s said in a statement accompanying
the report.
Moody’s said it expects China’s real economic growth rate to
ease to a range of between 7.5-8.5 percent in 2012 and 2013 from
the more heady 10.3 percent pace of the last decade.
Economists polled by Reuters earlier this month expected the
economy to grow 8.4 percent this year. After a sluggish patch in
the first quarter, growth is expected to rebound and steadily
tick up to reach 8.7 percent by April-June 2013.
Moody’s also said China’s trade and financial exposures to
the continuing problems in the euro zone were moderate to low.
The report said China’s large scale provided stability
against shocks and offsets institutional weaknesses associated
with the relatively low per capita income level in the world’s
second-biggest economy.
But it cautioned that institutional strength was moderate in
comparison with most other highly-rated sovereigns and that more
needed to be done to develop transparency.
“Political, economic, and financial event risks, which could
prompt an abrupt, multi-notch downgrade, are considered as low
and manageable, but not unimaginable,” the Moody’s statement
said.
China took a milestone step in turning the yuan into a
global currency this month by doubling the size of its trading
band against the dollar to 1 percent, pushing through a crucial
reform to further liberalise its financial markets.
China’s cabinet has also approved a pilot project in the
coastal city of Wenzhou that could form the cornerstone of
national financial sector reforms, with a plan to create a
clutch of new institutions to bring private sector funds into
China’s state controlled banking system.
Sources in close, direct contact with the People’s Bank of
China (PBOC) and the China Securities Regulatory Commission
(CSRC) told Reuters last week that reforms are ready to be
rushed out over the next 12 months to boost two-way capital
flows, drive diversification of business finance and accelerate
corporate currency hedging.
Premier Wen Jiabao last month staked his political legacy on
reform to rebalance the economy at China’s annual meeting of
parliament.
