The Chinese 10-year gilts gained on Thursday as S&P, a global rating agency has cut China’s outlook from stable to negative, increasing the prospects that there could be cut in China’s ratings, over next three months. The benchmark 10 year bonds yields dipped 0.62 pct at 2.88 pct along with other long term debt.
China’s economy is likely to expand at 6% or above rate over the next 3-years; however it expects both government and corporate leverage ratios to deteriorate, according to Standard & Poor’s.
China’s overall debt to GDP is already around 230% of GDP. The S&P expects interest cost to shore up above 30-35%, what Standard & Poor considering as sustainable. It also criticized the policy-making communications among central and regional powers, which sometimes lead to abrupt policy implementations.
The rating agency has finally warned that China may face a downgrade if policy-makers boost or at least try to boost GDP above 6.5% by means of further credit at much faster rate than nominal GDP growth, leading to investment ratio above 40%.
The material has been provided by InstaForex Company – www.instaforex.com