Moody's remains confident in outlook

A worker at a steel company in Lianyungang, Jiangsu province, in Jan 2015. [Photo/China Daily]

Leading rating agency Moody's Investor Services Inc has affirmed it is confident that China's economy is well geared to withstand financial shocks, despite the nation's high debt levels.

"China, more than other emerging markets, has the ability to manage its own future, at least within the confines of its domestic financial system and the domestic economy," said Alastair Wilson, Moody's head of global sovereign rating.

He was speaking at Moody's annual emerging markets forum in London on Tuesday. Wilson said China's fiscal strength, its partially closed capital account, and high foreign exchange reserves are all well placed to help it absorb shocks, if necessary, and dissipate them over time.

Wilson's words were in response to concerns, especially in the West, about China's rising debt levels. China's debt-to-GDP ratio rose to 277 percent at the end of 2016, from 254 percent the previous year.

"Often, when you see economies with China's level of leverage and credit growth, you begin to expect (a credit bubble burst). But we haven't seen that, because of China's capacity to control the outcome of its fortunes, in the real economy, the financial sector, household sector, within a closely controlled system," Wilson said.

Moody's current sovereign rating for China is Aa3, which is classified as investment grade.

Moody's confident outlook for China is shared by London investment managers.

"China continues to defy predictions of a hard landing," said Jan Dehn, head of research at Ashmore Investment Management Ltd.

"We believe that the perceived risks in China are wildly overstated and that growth, capital flight, and debt are largely unconnected issues."

Dehn said China's high debt level is not worrying when considered in combination with its extraordinarily high 49 percent savings rate.