China Credit Outlook Cut to Negative From Stable by Moody's

[Shotgunner51]

Dude, you probably are the one that is misleading the poster. Essentially, you are saying since China is the biggest creditor on earth, they do not have debt? LOL since when did having a surplus have anything to do with having debt?

My point being every country are in debt is actual debt. A basic of economic principal. To which the correct macroeconomic term for fiat currency are "Debt-Based Currency"

Fiat Currency | Fiat Planet
Credit theory of money - Wikipedia, the free encyclopedia
http://www.princeton.edu/~markus/research/papers/i_theory.pdf

It have been studied since early 1900s. By economist Alfred Mitchell-Innes. Which theorized that all currency is debt. While what you are talking about is the "Public Debt" and "Government Surplus". Which related to Accounting.

Your concept of debt is that if after your balanced your books, your asset is more than expense, then you are in credit (Means positive revenue) or if you have more expense than asset, then you are in debt, while in Economic theory, all fiat money are debts/credits (Depending on which way you are looking at)

As I explained in my post. Fiat Money is a paper that you use as tendered currency, and while the paper itself does not worth anything, the tender (or issuing authority) would have to vouch that your tender can exchange the face amount.

Say on one hand, you have a 100RMB note, on the other, an Apple which have a number 100 crafted on it.

Now, when you go out and try to spend that 100 RMB, you can use it to get 100RMB worth of goods and service. But if you bring your apple out and try to spend it, people will ask you to eat it, and at best, you can get another apple. Now, noted that the 100RMB which was printed on is worth "SIGNIFICANTLY" less than the apple, which a 100 RMB may actually cost 1 cents to prints, while the apple you are holding cost 3 or 4 RMB to buy.

Now, imagine this, you are holding a 100RMB notes, it only worth 100RMB because the bank have vouched it can let you exchange 100RMB worth of goods and service. Now what happened if the bank stop guarantee that? In theory, you are holding 99.99RMB debt (as in 99.99 RMB out of pocket yourselves). Because that is the value of the money, if the Central Bank of China stop guarantee that as legal tender.

Now, based on this, all money are debt, because it only worth that much because the bank said so. And unforntuately the world does not work on "Numerical Value system" Do you know what does that means?

Last year,the Chinese GDP reaches 11.38 trillions USD. Converting them to RMB would means Chines GDP is somewhere about 70 trillions RMB. My question is can you actually use them or spend them? NO (Capital N, Capital O). They exist on paper, as they are the value you add, subtract or balance, and while they are money, they aren't actually the same money you have in your wallet. That's when I go into a bank and ask them to show me 70 trillions worth of 100 RMB note, it cannot be done.Simply because Chinese hard currency does not have that much RMB in circulation. So, how do you actually guarantee the value that you have earn that much and convert them into hard currency so you can use it? Care to guess how??

Your central bank balance the need of currency by selling, buying and BORROWING from other country. So that they can continue to vouch for the value and you have 11.38 trillions GDP. If they failed to do so, that 11.38 trillions will not worth 11.38 trillions, as since they cannot voiuch for the value, they may as well have 11.38 trillions apple.

Just because your country have surplus, does not mean they did not borrow anything or have debts. I have a debit bank account, which have around 20,000 AUD in it, yet I have a credit card which I owe some 1,000 to commonwealth bank (I don't quite remember) I can both be having a surplus and having a debt. Is it so hard for you people to understand, I know this is Post Grad level Economics, but still....

Also, in case you don't know, if you have bothered to read the article, like you should before shooting it down, it said so that while the downgraded the outlook due to the investment environment, they did not downgrade the status (Which remain in AA) because the Chinese have enough surplus to finance a financial reform, the downgrade of outlook is due to the instability of Chinese financial market, that would require a reform. That means they do acknowledge while China in fact have debt, they are able to cover it (At least for now).

Before you call other misleading, Better bush up your own knowledge before opening your mouth and call for my ban. Otherwise it will make you look stupid.

Look at what you write:

1. First equate MONEY SUPPLY = debt? No that's not it, it makes you look stupid.
   
2. Bringing CURRENCY into this discussion, spinning it towards academic? Long, confusing, unrelated paragraphs trying to make the discussion complicated? Goal-pole shifting, laughable, stay on topic.
3. When there is DEBT booked by a borrower, CREDIT is booked by a lender. They CO-EXIST
   
4. There are different DEBT relations, examples (1) external speaking a nation versus foreigner, (2) internal banks lending to business, (3) government borrowing.

I keep it simple to the point, refer ALL to International Monetary Fund, not writing stupid & unrelated stories like you.

• ALL countries, I repeat, ALL have EXTERNAL LIABILITIES, and EXTERNAL ASSETS.
• Net International Investment Position (NIIP) is the EXTERNAL LIABILITIES less EXTERNAL ASSETS.
• If EXTERNAL ASSETS exceed EXTERNAL LIABILITIES, then the nation is CREDITOR NATION.
• If EXTERNAL LIABILITIESS exceed EXTERNAL ASSETS, then the nation is DEBTOR NATION

Balance of Payments and International Investment Position Statistics
Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6​

Now you got the above OFFICIAL definition right, don't you? Next, results, see the official data. Read financial accounts from various central banks.

• At end 2015 Q2, Japan's international investment position was Yen +347.543 trillion
  
• At end 2015 Q3, Germany was Euro +1.4594 trillion
• At end 2015 Q3, China Mainland was USD +1.5399 trillion
• At end 2015 Q3, China Hong Kong was HKD +7.7904 trillion
• At end 2015 Q3, USA was USD -$7,269.8 billion. Yes, negative, and deepest in the world.

http://www.mof.go.jp/international_policy/reference/iip/201512a.pdf
http://www.bundesbank.de/Redaktion/...rmoegen_quartal.en.pdf?__blob=publicationFile
http://www.safe.gov.cn/
http://www.statistics.gov.hk/pub/B10400012015QQ03B0100.pdf
News Release: U.S. Net International Investment Position​

See above? It's very simple:

• US is the world's largest DEBTOR NATION
• China (Mainland, HK, TW) is the world's largest CREDITOR NATION.

You better stop misleading, and stop confusing on a simple matter. Learn something from official sources before opening your mouth, otherwise it will make you look stupid.


@WebMaster @waz @Oscar @Hu Songshan @Horus @Chinese-Dragon @Nihonjin1051 @Slav Defence

 

[jhungary]

Look at what you write:

1. First equate MONEY SUPPLY = debt? No that's not it, it makes you look stupid.
   
2. Bringing CURRENCY into this discussion, spinning it towards academic? Long, confusing, unrelated paragraphs trying to make the discussion complicated? Goal-pole shifting, laughable, stay on topic.
3. When there is DEBT booked by a borrower, CREDIT is booked by a lender. They CO-EXIST
   
4. There are different DEBT relations, examples (1) external speaking a nation versus foreigner, (2) internal banks lending to business, (3) government borrowing.

I keep it simple to the point, refer ALL to International Monetary Fund, not writing stupid & unrelated stories like you.

• ALL countries, I repeat, ALL have EXTERNAL LIABILITIES, and EXTERNAL ASSETS.
• Net International Investment Position (NIIP) is the EXTERNAL LIABILITIES less EXTERNAL ASSETS.
• If EXTERNAL ASSETS exceed EXTERNAL LIABILITIES, then the nation is CREDITOR NATION.
• If EXTERNAL LIABILITIESS exceed EXTERNAL ASSETS, then the nation is DEBTOR NATION

Balance of Payments and International Investment Position Statistics
Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6​

Now you got the above OFFICIAL definition right, don't you? Next, results, see the official data. Read financial accounts from various central banks.

• At end 2015 Q2, Japan's international investment position was Yen +347.543 trillion
  
• At end 2015 Q3, Germany was Euro +1.4594 trillion
• At end 2015 Q3, China Mainland was USD +1.5399 trillion
• At end 2015 Q3, China Hong Kong was HKD +7.7904 trillion
• At end 2015 Q3, USA was USD -$7,269.8 billion

http://www.mof.go.jp/international_policy/reference/iip/201512a.pdf
http://www.bundesbank.de/Redaktion/...rmoegen_quartal.en.pdf?__blob=publicationFile
http://www.safe.gov.cn/
http://www.statistics.gov.hk/pub/B10400012015QQ03B0100.pdf
News Release: U.S. Net International Investment Position​

See above? It's very simple:

• US is the world's largest DEBTOR NATION
• China (Mainland, HK, TW) is the world's largest CREDITOR NATION.

You better stop misleading, and stop confusing on a simple matter. Learn something from official sources before opening your mouth, otherwise it will make you look stupid.


@WebMaster @waz @Oscar @Hu Songshan @Horus @Chinese-Dragon @Nihonjin1051 @Slav Defence

Again. What have being a creditor have to do with being in debt and borrowing money??

Bank, being a creditor, lend money to folks like you and me, and yet, being the biggest creditor to us, care to think where the bank have to money to lend it to people like you and me? They borrow from some one else using line-of-credit.

Now, to say being a creditor would not make you in debt is, no other word for it, foolish. Do you know what is the primary reason a bank gone bust? Lend too much money (credit) to people like you and me and cannot recover enough to pay off their own debt. Hence bust. This is exactly the reason why we entered a financial crisis in 2008. Bank borrowed too much money on their credit from other bank (namely central bank) and since those busted bank cannot recover enough of their own money, to pay up the central bank for their own loan, they gone bust.

It's like I owe you money, you are being my creditor, and I am your debtor, and you went to a pub and get a drink and you did not pay for it, instead, since I owe you my debt, you ask me to come to the pub and pay your tab. How's that work? Would you think it's my fault you can't pay your tab since I owe you money??

This is the question I ask in my last post, I have not yet have an answer to. Beside some name calling. And keep saying China is a creditor nation. Yes, China is a creditor nation, I did not dispute this point, but again, what that have to do with China be in debt?

Again, my point is, in Macroeconomic point of view, EVERY COUNTRY IS IN DEBT.

Simply because you always have more money in balance than actual floating circulation.. Again, if you go to Chinese Central bank and ask, can I see the last year GDP all 70 trillions RMB in currency form, this cannot be done as there are always less money you can use than the reported economy.

If you cannot exchange the actual currency value of your GDP, unless what you earn last year have been negate, then the country - China is in debt to its people for whatever the GDP value minus the Currency circulation.

That is call in debt. And not the balancing the book kind of debt/credit relation. Your interpretation is basically what they teaches in University for Accounting. I know Accounting, my mother and sister was/is a CPA. While my interpretation is solely based on Economic view. To specify, it's macroeconomics.

Let me dumb it down for you ne more time. My point is this

Did Chinese government have debt?

YES. There are both external and internal debt, as I said, unless you can cash out every transaction there are you make in China the last year, THERE ARE ALWAYS debt involved. Being the biggest creditor on earth by lending other people money does not have any relationship in Chinese borrowing money themselves. And when you borrow money, you will need to look at your credit rating. This is why this exist

China Debt Clock :: National Debt of China

calling @LeveragedBuyout

And by the way, for those of us who actually read this news, the reason listed by moody to downgrade the outlook is because China have slashed nearly 30% of their forex surplus, for those who does not understand, that's 1 trillions dollars.

 

[vtnsx]

Would love to see someone start a war with China, Germany or Japan.

I know you would but don't worry. It will come true and you wouldn't be on here talking garbage. lol, I probably wont see you because you would be hiding behind your wall of China. LOL

 

[Shotgunner51]

Again. What have being a creditor have to do with being in debt and borrowing money??

Bank, being a creditor, lend money to folks like you and me, and yet, being the biggest creditor to us, care to think where the bank have to money to lend it to people like you and me? They borrow from some one else using line-of-credit.

Now, to say being a creditor would not make you in debt is, no other word for it, foolish. Do you know what is the primary reason a bank gone bust? Lend too much money (credit) to people like you and me and cannot recover enough to pay off their own debt. Hence bust. This is exactly the reason why we entered a financial crisis in 2008. Bank borrowed too much money on their credit from other bank (namely central bank) and since those busted bank cannot recover enough of their own money, to pay up the central bank for their own loan, they gone bust.

It's like I owe you money, you are being my creditor, and I am your debtor, and you went to a pub and get a drink and you did not pay for it, instead, since I owe you my debt, you ask me to come to the pub and pay your tab. How's that work? Would you think it's my fault you can't pay your tab since I owe you money??

This is the question I ask in my last post, I have not yet have an answer to. Beside some name calling. And keep saying China is a creditor nation. Yes, China is a creditor nation, I did not dispute this point, but again, what that have to do with China be in debt?

Again, my point is, in Macroeconomic point of view, EVERY COUNTRY IS IN DEBT.

Simply because you always have more money in balance than actual floating circulation.. Again, if you go to Chinese Central bank and ask, can I see the last year GDP all 70 trillions RMB in currency form, this cannot be done as there are always less money you can use than the reported economy.

If you cannot exchange the actual currency value of your GDP, unless what you earn last year have been negate, then the country - China is in debt to its people for whatever the GDP value minus the Currency circulation.

That is call in debt. And not the balancing the book kind of debt/credit relation. Your interpretation is basically what they teaches in University for Accounting. I know Accounting, my mother and sister was/is a CPA. While my interpretation is solely based on Economic view. To specify, it's macroeconomics.

Let me dumb it down for you ne more time. My point is this

Did Chinese government have debt?

YES. There are both external and internal debt, as I said, unless you can cash out every transaction there are you make in China the last year, THERE ARE ALWAYS debt involved. Being the biggest creditor on earth by lending other people money does not have any relationship in Chinese borrowing money themselves. And when you borrow money, you will need to look at your credit rating. This is why this exist

China Debt Clock :: National Debt of China

Again, keep spinning, from "money supply", "currency", "central banks", and now "macroeconomic"? Even "GDP" which is just a measure on size of economic activities? Laughable, and completely unrelated. Keep it simple, straight to the point. Back on DEBT. There are different DEBT-CREDIT relationships as I have taught you.

EXTERNAL SECTOR

This is NATION versus rest-of-the-world, versus foreigners.
NOT measuring GOVERNMENT, purely NATION.
Yes, China is a CREDITOR NATION, largest, while US is a DEBTOR NATION, also largest. Two exactly opposite extremes!

PUBLIC SECTOR

Now this is GOVERNMENT. I thought I told you in previous post?
This is GOVERNMENT versus lenders (from both domestic and foreign).
NOT measuring NATION, entirely different measures, may or may not OVERLAP.

All (mostly) GOVERNMENTS are indebted, but NOT ALL NATIONS are indebted. You got this now?

On numbers, didn't you read post #7? Always use OFFICIAL sources, Bretton Woods organizations, no presstitude, no blog, no fanboy dream, straight to IMF Data shall we? China 43.2%, US 104.85%. US also leads in PUBLIC DEBT, by far!

 

[jhungary]

Again, spinning "macroeconomic"? Even GDP which aims to measure size of economic activities? Laughable, and completely unrelated. Keep it simple, straight to the point. Back on DEBT. There are different DEBT-CREDIT relationships as I have taught you.

EXTERNAL SECTOR

This is NATION versus rest-of-the-world, versus foreigners.
NOT measuring GOVERNMENT, purely NATION.
Yes, China is a CREDITOR NATION, largest, while US is a DEBTOR NATION, also largest. Two exactly opposite extremes!

PUBLIC SECTOR

Now this is GOVERNMENT. I thought I told you in previous post?
This is GOVERNMENT versus lenders (from both domestic and foreign).
NOT measuring NATION, entirely different measures, may or may not OVERLAP.

All (mostly) GOVERNMENTS are indebted, but NOT ALL NATIONS are indebted. You got this now?

On numbers, didn't you read post #7? Straight to IMF Data shall we? China 43.2%, US 104.85%.

Always use OFFICIAL sources, Bretton Woods organizations. US also leads in PUBLIC DEBT, by far!

You still have not answer me WHAT DOES BEING A CREDITOR NATION HAVE TO DO WITH BEING IN DEBT AND BORROWING MONEY AND TO SOME EXTEND, THE MOODY RATING??.

Did Moody rate China as a whole or Chinese Government? Perhaps you should look at the title instead of blasting it out without reading it.

Moody's cuts China Government debt outlook to 'negative' from 'stable' - ABC News (Australian Broadcasting Corporation)

You talk as if the private company in China will pay off the Government debt.

Again, do tell how China being a creditor nation have anything to do with Chinese borrowing, Chinese debt and Moody rating. I am awaiting answer.

China Gross External Debt | 1985-2016 | Data | Chart | Calendar | Forecast

lol, talking about "teaching" me.......I will probably bring a print out to my MPhil Thesis advisor next week and we can have a laugh on how you "Taught" me here.

Beside, China "AS A NATION" are actually in debt.

http://www.economist.com/blogs/freeexchange/2014/07/china-s-debt-gdp-level

The aggregate credit-to-GDP ratio covers government, corporate and household debt. Although 200% is at the high end for developing nations, it is below aggregate debt levels in more mature economies. Data from 2011 published by the McKinsey Global Institute

that is from 2014 and this is from 2016

How China accumulated $28 trillion in debt in such a short time | Business Insider

 

[Aepsilons]

@Shotgunner51 bro,

It seems that there is a conspiracy against China and Japan, i suppose a targetted schema , a reprisal against our quantitative easing policies. They did the same to us over a year ago. You know , our quantitative easing policies being a direct threat to their own product's marketability. I suppose Japan and China should further enhance economic cooperation.

Moody's downgrades Japan to A1 from Aa3; outlook stable

 

[jhungary]

@Shotgunner51 bro,

It seems that there is a conspiracy against China and Japan, i suppose a targetted schema , a reprisal against our quantitative easing policies. They did the same to us over a year ago. You know , our quantitative easing policies being a direct threat to their own product's marketability. I suppose Japan and China should further enhance economic cooperation.

Moody's downgrades Japan to A1 from Aa3; outlook stable

lol, would it be becoz your economic sucks? Like the Chinese said 6 months ago??

 

[Spectre]

Technically @jhungary is correct but in terms of NIIP @Shotgunner51 is correct. I think both of you are arguing about two different concepts.

My opinion is that in matters of economic power projection NIIP is a more important parameter as compared to Total Debt/GDP ratios. Hence in terms of figures quoted by @Shotgunner51 countries like Germany, Japan and China have have much higher economic leverage. US is a special case due to primacy of Dollar and all the room it gives to Fed when it comes to manoeuvring their way out of crises. It would be unfair to compare any country to US - It stands apart.

As for rating by Moodys - Though Chinese posters may shrug off it's relevance and sight past lapses in credibility to undermine it's validity - The Big Three rating agencies still hold enough pricing power - (ratings are an indicator of returns adjusted for risk in a most simplistic sense) Investment Institutions like Pension Funds, Mega Corporations, Wealth Funds etc put a huge stock by these ratings and many a times value of securities be it debt instruments or otherwise are arrived after taking the relevant ratings into account.

@PARIKRAMA @Nihonjin1051 and few others may back me up on this.

 

[jhungary]

Technically @jhungary is correct but in terms of NIIP @Shotgunner51 is correct. I think both of you are arguing about two different concepts.

My opinion is that in matters of economic power projection NIIP is a more important parameter as compared to Total Debt/GDP ratios. Hence in terms of figures quoted by @Shotgunner51 countries like Germany, Japan and China have have much higher economic leverage. US is a special case due to primacy of Dollar and all the room it gives to Fed when it comes to manoeuvring their way out of crises. It would be unfair to compare any country to US - It stands apart.

As for rating by Moodys - Though Chinese posters may shrug off it's relevance and sight past lapses in credibility to undermine it's validity - The Big Three rating agencies still hold enough pricing power - (ratings are an indicator of returns adjusted for risk in a most simplistic sense) Investment Institutions like Pension Funds, Mega Corporations, Wealth Funds etc put a huge stock by these ratings and many a times value of securities be it debt instruments or otherwise are arrived after taking the relevant ratings into account.

@PARIKRAMA @Nihonjin1051 and few others may back me up on this.

I never ever said his point wasn't right, In fact, I agree on his point, which is China being a creditor nation. Again, my point being how what he said have anything to do with what I said? As you pointed out quite cleverly, what I said and what he said is two different things.

On the other hand, he called me "Misinformed" "ignorant" and "Spreading fake information". He is the one that said I am this and that, I never even say anything other than "Meh"

He may as well said "Moody rating is moot point to Chinese Economic because the sun rise from the east" lol. You don't just put random point in a thread and expect to call on other with it. :LOL:

 

[Ewok6102]

I know you would but don't worry. It will come true and you wouldn't be on here talking garbage. lol, I probably wont see you because you would be hiding behind your wall of China. LOL

If it will happen, then it would have happened decades back when China was at its weakest. You can't find a better time can you?

You have to make the most foolish of claims now that China is the dominant regional power with technologies, man power, economy, space and nuclear capabilities that you can only dream of.

If it happens, I won't be the one hiding behind any walls, I would be out there laughing at the likes of you.

You South Annamese can dream on about your great saviour the US putting you guys back in power and the communist party would allow you to take back Vietnam.

 

[Aepsilons]

Technically @jhungary is correct but in terms of NIIP @Shotgunner51 is correct. I think both of you are arguing about two different concepts.

My opinion is that in matters of economic power projection NIIP is a more important parameter as compared to Total Debt/GDP ratios. Hence in terms of figures quoted by @Shotgunner51 countries like Germany, Japan and China have have much higher economic leverage. US is a special case due to primacy of Dollar and all the room it gives to Fed when it comes to manoeuvring their way out of crises. It would be unfair to compare any country to US - It stands apart.

As for rating by Moodys - Though Chinese posters may shrug off it's relevance and sight past lapses in credibility to undermine it's validity - The Big Three rating agencies still hold enough pricing power - (ratings are an indicator of returns adjusted for risk in a most simplistic sense) Investment Institutions like Pension Funds, Mega Corporations, Wealth Funds etc put a huge stock by these ratings and many a times value of securities be it debt instruments or otherwise are arrived after taking the relevant ratings into account.

@PARIKRAMA @Nihonjin1051 and few others may back me up on this.

Thanks @Spectre , great insight, my friend.

 

[Spectre]

I never ever said his point wasn't right, In fact, I agree on his point, which is China being a creditor nation. Again, my point being how what he said have anything to do with what I said? As you pointed out quite cleverly, what I said and what he said is two different things.

On the other hand, he called me "Misinformed" "ignorant" and "Spreading fake information". He is the one that said I am this and that, I never even say anything other than "Meh"

He may as well said "Moody rating is moot point to Chinese Economic because the sun rise from the east" lol. You don't just put random point in a thread and expect to call on other with it. :LOL:

Well few people have set templates of arguments which they use when the occasion arises. Sometimes it back fires. I believe many people on PDF approach every thing in terms of "Mine is bigger" without dwelling into intricacies of the topic.

It helps when you understand this reductionist level of discourse and reply in a similar manner as anything else will lead to frustration.

 

[jhungary]

Well few people have set templates of arguments which they use when the occasion arises. Sometimes it back fires. I believe many people on PDF approach every thing in terms of "Mine is bigger" without dwelling into intricacies of the topic.

It helps when you understand this reductionist level of discourse and reply in a similar manner as anything else will lead to frustration.

oh well.....

I cannot be responsible for other people intelligence when it come down to this, but hey, at least have fun arguing.

 

[PARIKRAMA]

What Moody said is this

Main Rating
The key drivers of the outlook revision are:

1. The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet.

2. A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks.

3. Uncertainty about the authorities' capacity to implement reforms -- given the scale of reform challenges -- to address imbalances in the economy.

At the same time, China's fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. This underpins the decision to affirm China's Aa3 rating.

RATIONALE FOR ASSIGNING A NEGATIVE OUTLOOK

FIRST DRIVER -- WEAKENING FISCAL METRICS AND SIZEABLE CONTINGENT LIABILITIES

The first driver of the negative outlook on China's rating relates to the government's fiscal strength which has weakened and which we expect to diminish further, albeit from very high levels.

The government's balance sheet is exposed to contingent liabilities through regional and local governments, policy banks and state-owned enterprises (SOEs). The ongoing increase in leverage across the economy and financial system and the stress in the SOE sector imply a rising probability that some of the contingent liabilities will crystallize on the government's balance sheet. In addition, we believe that continuing growth in contingent liabilities -- along with stated government objectives to introduce more market discipline -- suggests that support from the government and the banking system will increasingly be prioritized, based on the relative importance of each entity for the implementation of strategic national policy goals.

While not our base case scenario, the government's fiscal strength would be exposed to additional weakening if underlying growth, excluding policy-supported economic activity, remained weak. In such an environment, the liabilities of policy banks would likely increase to fund government-sponsored investment, while the leverage of SOEs -- already under stress -- would rise further.

We do not expect all or even a significant proportion of contingent liabilities to crystallize on the government's balance sheet in the short term. However, their existence and increase in size reflect economic imbalances. In particular, high and rising SOE leverage raises the risk of either a sharp slowdown in economic growth, as debt servicing constrains other spending, or a marked deterioration of bank asset quality. Either of these developments could ultimately result in higher government debt and additional downward pressure on the government's credit profile.

In addition, government debt has risen markedly, to 40.6% of GDP at the end of 2015, according to our estimates, from 32.5% in 2012. We expect a further increase to 43.0% by 2017, consistent with an accommodative fiscal stance that will likely involve higher government spending and possible reductions in the overall tax burden.

At the same time, we expect debt affordability to remain high as large domestic savings will continue to fund government debt.

SECOND DRIVER -- ERODING EXTERNAL STRENGTH

The second driver relates to China's external vulnerability. China's foreign exchange reserves have fallen markedly over the last 18 months, to $3.2 trillion in January 2016, $762 billion below their peak in June 2014.

At the same time, reserves remain ample, particularly in relation to the size of China's external debt. However, their decline highlights the possibility that pressure on the exchange rate and weakening confidence in the ability of the authorities to maintain economic growth and implement reforms could fuel further capital outflows. In particular, a fall in reserves -- corresponding to sustained deposit outflows -- could raise pressure on the deposit-funded banking sector.

Measures to address falling foreign exchange reserves and downward pressure on the renminbi have negative implications for the economy and financial sector.

• First, a tightening of capital controls in response to sustained outflows would damage the credibility of the authorities' commitment to liberalizing the capital account, an essential element of financial sector reform.
• Second, allowing reserves to fall to preserve the value of the currency -- when pressures exist -- would tighten liquidity conditions in China at a time when parts of the economy are slowing sharply and when the debt-servicing capability of some corporates is impaired.
• Third, preserving foreign exchange reserves and allowing a sharp depreciation of the currency would likely fuel further capital outflows.

THIRD DRIVER -- RISKS OF A LOSS IN POLICY CREDIBILITY AND EFFICIENCY

The third driver concerns institutional strength. China's institutions are being tested by the challenges stemming from the multiple policy objectives of maintaining economic growth, implementing reform, and mitigating market volatility. Fiscal and monetary policy support to achieve the government's economic growth target of 6.5% may slow planned reforms, including those related to SOEs.

Incomplete implementation or partial reversals of some reforms risk undermining the credibility of policymakers. Interventions in the equity and foreign exchange markets over the past year suggest that ensuring financial and economic stability is also an objective, but there is considerably uncertainty about policy priorities.

Without credible and efficient reforms, China's GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable. Government debt would increase more sharply than we currently expect. These developments would likely fuel further capital outflows.


RATIONALE FOR AFFIRMING CHINA'S Aa3 RATING

The very large size of China's economy contributes to its credit strength. Moreover, although GDP growth is slowing, it will remain markedly higher than most of China's rating peers. The size of the buffers available to face current fiscal and capital outflow challenges allows for a gradual implementation of reform and therefore supports an affirmation of the rating at Aa3. These buffers include a relatively moderate level of government debt, which is financed at low cost, and high domestic savings and still substantial foreign exchange reserves.

We expect a gradual economic slowdown, made possible by the capacity and willingness of the authorities to support growth. Moreover, although contingent liabilities are large, they do not pose an imminent risk to the government's balance sheet. In a largely closed financial system, buffer erosion would most likely be gradual, providing time to address key areas of reform.


WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could revise the rating outlook to stable if we concluded that government policy was likely to succeed in balancing competing priorities and thereby arrest the deterioration in China's fiscal metrics and reduce contingent liabilities for the sovereign most likely through effective restructuring of SOEs in overcapacity sectors.

Moreover, a moderation in capital outflows due to improved confidence in the economy and policies as well as advancement of reforms -- in particular in the SOE and financial sectors, including some further opening of the capital account -- would be consistent with returning the outlook to stable.


Conversely, Moody's could downgrade the rating if we observed a slowing pace in the adoption of reforms needed to support sustainable growth and to protect the government's balance sheet. Tangibly, this could happen if debt metrics weaken, contingent liabilities increase, or progress on SOE reform stalls. Sustained capital outflows or a marked tightening in capital controls without tangible progress on reform implementation would also be consistent with a downgrade of the rating.


COUNTRY CEILINGS

• China's local and foreign-currency bond and deposit ceilings remain at Aa3.
• China's short-term foreign-currency bond and bank deposit ceilings remain at Prime-1 (P-1).
• GDP per capita (PPP basis, US$): 13,224 (2014 Actual) (also known as Per Capita Income)
• Real GDP growth (% change): 7.3% (2014 Actual) (also known as GDP Growth)
• Inflation Rate (CPI, % change Dec/Dec): 1.5% (2014 Actual)
• Gen. Gov. Financial Balance/GDP: -1.8% (2014 Actual) (also known as Fiscal Balance)
• Current Account Balance/GDP: 2.1% (2014 Actual) (also known as External Balance)
• External debt/GDP: 8.6% (2014 Actual)
• Level of economic development: Very High level of economic resilience
• Default history: No default events (on bonds or loans) have been recorded since 1983.

On 29 February 2016, a rating committee was called to discuss the rating of the China, Government of.
The main points raised during the discussion were:

• The issuer's institutional strength/framework, have decreased.
• The issuer's fiscal or financial strength, including its debt profile, has decreased.
• The issuer has become more susceptible to event risks.
• Other views raised included: The issuer's economic fundamentals, including its economic strength, have not materially changed

@Shotgunner51 @Nihonjin1051 @jhungary @Spectre
Sorry i took some time as i needed to login into my office system to get the moody report. Apologies in advance as i cannot share the main report (paid subscription of my corporate entity). This is the best gist i could copy paste.


As you read and see the basis of this report versus what is in media reports by Bloomberg is a bit opposite.. The concerns are raised for defaulting debt and CDS whereas this report talks about risks whereas its clear that long term the rating is still stable at Aa3. Of course the outlook points to changing risk metrics where it sees a downgrade rating risk based on factors which it has clearly mentioned.

Sadly all these points were missed and has created a bit confusion here where focus was given on both Debt and NIIP which represents two sides of the same coin bcz i can always be surplus with my savings account and still owe a debt in credit or any other loan too in layman terms..


The negative outlook based on contingent liability crystallization risk+ decrease in Fx + slowdown in reforms are the key risk points ...

I hope with this the whole discussion could move to more fundamental issues which are being raised.

 

[Spectre]

What Moody said is this

Main Rating
The key drivers of the outlook revision are:

1. The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet.

2. A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks.

3. Uncertainty about the authorities' capacity to implement reforms -- given the scale of reform challenges -- to address imbalances in the economy.

At the same time, China's fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. This underpins the decision to affirm China's Aa3 rating.

RATIONALE FOR ASSIGNING A NEGATIVE OUTLOOK

FIRST DRIVER -- WEAKENING FISCAL METRICS AND SIZEABLE CONTINGENT LIABILITIES

The first driver of the negative outlook on China's rating relates to the government's fiscal strength which has weakened and which we expect to diminish further, albeit from very high levels.

The government's balance sheet is exposed to contingent liabilities through regional and local governments, policy banks and state-owned enterprises (SOEs). The ongoing increase in leverage across the economy and financial system and the stress in the SOE sector imply a rising probability that some of the contingent liabilities will crystallize on the government's balance sheet. In addition, we believe that continuing growth in contingent liabilities -- along with stated government objectives to introduce more market discipline -- suggests that support from the government and the banking system will increasingly be prioritized, based on the relative importance of each entity for the implementation of strategic national policy goals.

While not our base case scenario, the government's fiscal strength would be exposed to additional weakening if underlying growth, excluding policy-supported economic activity, remained weak. In such an environment, the liabilities of policy banks would likely increase to fund government-sponsored investment, while the leverage of SOEs -- already under stress -- would rise further.

We do not expect all or even a significant proportion of contingent liabilities to crystallize on the government's balance sheet in the short term. However, their existence and increase in size reflect economic imbalances. In particular, high and rising SOE leverage raises the risk of either a sharp slowdown in economic growth, as debt servicing constrains other spending, or a marked deterioration of bank asset quality. Either of these developments could ultimately result in higher government debt and additional downward pressure on the government's credit profile.

In addition, government debt has risen markedly, to 40.6% of GDP at the end of 2015, according to our estimates, from 32.5% in 2012. We expect a further increase to 43.0% by 2017, consistent with an accommodative fiscal stance that will likely involve higher government spending and possible reductions in the overall tax burden.

At the same time, we expect debt affordability to remain high as large domestic savings will continue to fund government debt.

SECOND DRIVER -- ERODING EXTERNAL STRENGTH

The second driver relates to China's external vulnerability. China's foreign exchange reserves have fallen markedly over the last 18 months, to $3.2 trillion in January 2016, $762 billion below their peak in June 2014.

At the same time, reserves remain ample, particularly in relation to the size of China's external debt. However, their decline highlights the possibility that pressure on the exchange rate and weakening confidence in the ability of the authorities to maintain economic growth and implement reforms could fuel further capital outflows. In particular, a fall in reserves -- corresponding to sustained deposit outflows -- could raise pressure on the deposit-funded banking sector.

Measures to address falling foreign exchange reserves and downward pressure on the renminbi have negative implications for the economy and financial sector.

• First, a tightening of capital controls in response to sustained outflows would damage the credibility of the authorities' commitment to liberalizing the capital account, an essential element of financial sector reform.
• Second, allowing reserves to fall to preserve the value of the currency -- when pressures exist -- would tighten liquidity conditions in China at a time when parts of the economy are slowing sharply and when the debt-servicing capability of some corporates is impaired.
• Third, preserving foreign exchange reserves and allowing a sharp depreciation of the currency would likely fuel further capital outflows.

THIRD DRIVER -- RISKS OF A LOSS IN POLICY CREDIBILITY AND EFFICIENCY

The third driver concerns institutional strength. China's institutions are being tested by the challenges stemming from the multiple policy objectives of maintaining economic growth, implementing reform, and mitigating market volatility. Fiscal and monetary policy support to achieve the government's economic growth target of 6.5% may slow planned reforms, including those related to SOEs.

Incomplete implementation or partial reversals of some reforms risk undermining the credibility of policymakers. Interventions in the equity and foreign exchange markets over the past year suggest that ensuring financial and economic stability is also an objective, but there is considerably uncertainty about policy priorities.

Without credible and efficient reforms, China's GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable. Government debt would increase more sharply than we currently expect. These developments would likely fuel further capital outflows.


RATIONALE FOR AFFIRMING CHINA'S Aa3 RATING

The very large size of China's economy contributes to its credit strength. Moreover, although GDP growth is slowing, it will remain markedly higher than most of China's rating peers. The size of the buffers available to face current fiscal and capital outflow challenges allows for a gradual implementation of reform and therefore supports an affirmation of the rating at Aa3. These buffers include a relatively moderate level of government debt, which is financed at low cost, and high domestic savings and still substantial foreign exchange reserves.

We expect a gradual economic slowdown, made possible by the capacity and willingness of the authorities to support growth. Moreover, although contingent liabilities are large, they do not pose an imminent risk to the government's balance sheet. In a largely closed financial system, buffer erosion would most likely be gradual, providing time to address key areas of reform.


WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could revise the rating outlook to stable if we concluded that government policy was likely to succeed in balancing competing priorities and thereby arrest the deterioration in China's fiscal metrics and reduce contingent liabilities for the sovereign most likely through effective restructuring of SOEs in overcapacity sectors.

Moreover, a moderation in capital outflows due to improved confidence in the economy and policies as well as advancement of reforms -- in particular in the SOE and financial sectors, including some further opening of the capital account -- would be consistent with returning the outlook to stable.


Conversely, Moody's could downgrade the rating if we observed a slowing pace in the adoption of reforms needed to support sustainable growth and to protect the government's balance sheet. Tangibly, this could happen if debt metrics weaken, contingent liabilities increase, or progress on SOE reform stalls. Sustained capital outflows or a marked tightening in capital controls without tangible progress on reform implementation would also be consistent with a downgrade of the rating.


COUNTRY CEILINGS

• China's local and foreign-currency bond and deposit ceilings remain at Aa3.
• China's short-term foreign-currency bond and bank deposit ceilings remain at Prime-1 (P-1).
• GDP per capita (PPP basis, US$): 13,224 (2014 Actual) (also known as Per Capita Income)
• Real GDP growth (% change): 7.3% (2014 Actual) (also known as GDP Growth)
• Inflation Rate (CPI, % change Dec/Dec): 1.5% (2014 Actual)
• Gen. Gov. Financial Balance/GDP: -1.8% (2014 Actual) (also known as Fiscal Balance)
• Current Account Balance/GDP: 2.1% (2014 Actual) (also known as External Balance)
• External debt/GDP: 8.6% (2014 Actual)
• Level of economic development: Very High level of economic resilience
• Default history: No default events (on bonds or loans) have been recorded since 1983.

On 29 February 2016, a rating committee was called to discuss the rating of the China, Government of.
The main points raised during the discussion were:

• The issuer's institutional strength/framework, have decreased.
• The issuer's fiscal or financial strength, including its debt profile, has decreased.
• The issuer has become more susceptible to event risks.
• Other views raised included: The issuer's economic fundamentals, including its economic strength, have not materially changed

@Shotgunner51 @Nihonjin1051 @jhungary @Spectre
Sorry i took some time as i needed to login into my office system to get the moody report. Apologies in advance as i cannot share the main report (paid subscription of my corporate entity). This is the best gist i could copy paste.


As you read and see the basis of this report versus what is in media reports by Bloomberg is a bit opposite.. The concerns are raised for defaulting debt and CDS whereas this report talks about risks whereas its clear that long term the rating is still stable at Aa3. Of course the outlook points to changing risk metrics where it sees a downgrade rating risk based on factors which it has clearly mentioned.

Sadly all these points were missed and has created a bit confusion here where focus was given on both Debt and NIIP which represents two sides of the same coin bcz i can always be surplus with my savings account and still owe a debt in credit or any other loan too in layman terms..


The negative outlook based on contingent liability crystallization risk+ decrease in Fx + slowdown in reforms are the key risk points ...

I hope with this the whole discussion could move to more fundamental issues which are being raised.

Thanks for the summary. I dont have access to these reports anymore.

When I look at a financial statements, contingent liabilities are the most interesting items to me as they are off balance sheet items. These liabilities in themselves aren't bad provided the resources are present to take the hit if they go sideways.

The other factor which I feel is often over-looked are the specifics of asset quality specially by rating agencies. China in this regard is a big question mark for me. They have been investing quite heavily in emerging markets all over the world and some of these investment are guided purely by geo-politics rather than financial risk and viability. While on paper these investments may be credit worthy, there is a lot of fudging of actuals and off the book quid pro quo. To be clear all countries indulge in this practice but not on the scale China does. The only other peer in terms of total investment is Japan and Japanese investments are financially very sound and clean. Germans and others in the list have very different set of criteria and most of the investment is on corporate level so not worth discussing.

 

[ito]

Credit rating is more to do with the country's ability to fulfill its debt obligations than with the amount of debt one has. I am finding it funny that many of the Chinese posters are bring in the amount of Country's debt to raise question on Moody's rating.