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Salomon Expects Healthy Credit Rating for China
Salomon Smith Barney, a financial institution under Citigroup, forecast that China's sovereign credit quality on external debt remains strong and should improve with continued reform accompanying the WTO accession.
In a report on China's credit rating available here Thursday, Salomon considers China a low-single-A credit, reflecting its strong external position, robust economic performance and continued progress in corporate and bank restructuring.
International rating agencies have given China a complexity of credit ratings. Moody's and Fitch IBCA rate China a low-single-A, while Standard & Poors rates it a triple-B flat.
Salomon says that China's GDP growth increased to 8 percent in 2000 and expects China to outperform most other economies this year with 7.8 percent growth despite the global slowdown.
China's reserves have climbed even higher this year as foreign capital flows remain healthy and impact of the global slowdown on China's trade balance has been relatively slight, it says.
The report points out that entering the WTO will be one of the most significant events in China's recent economic history.
Although the transition poses risks, the long-term impact on China's credit should be strongly positive. Not only will it speed the improvement of China's laws and institutions, but attract foreign capital flows, technology and management as well.
Moreover, the liberalization of trade and investment under WTO will increase the pressure on the state-owned enterprises and state-owned commercial banks to reform, the report noted, and this should have a long-term positive impact on the government's ability to management the fiscal risk despite possible transitory difficulties.
Citing the successful launch and oversubscription of China's euro and Eurodollar bonds worth 1.5 billion U.S. dollars in May, Salomon thinks strong investor appetite and local liquidity may provide some "juice" for China bonds although they are already trading at rich levels.
China also offers extra protection in the event that U.S. slowdown unexpectedly lasts beyond 2001. China is likely to be the safest play in Asia thanks to its resilient economy, buoyed by strong domestic demand, the report concludes.
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