S&P Upgrades China’s Sovereign Ratings

In the CNBC Asia video below, Tan Kim Eng, director of sovereign ratings at Standard & Poor’s Ratings, says China won’t be coming to international markets to sell its sovereign debt anytime soon because it can fulfil its needs domestically. The questions on China’s finances have more to do with the opacity of the provincial governments and implicit backstops for state-affiliated finance companies that would balloon debt levels in the event of a credit crisis.

Tan Kim Eng believes China’s sovereign ratings deserve an upgrade nonetheless because of low public sector indebtedness and high savings levels in China. Pimco recommends EM bonds for similar reasons and you can see the chart of comparative debt levels in emerging markets and developed markets in my post highlighting Pimco’s most recent comments on EM bonds. Tan’s commentary is below but, by mentioning the private sector savings, it sounds to me like he is implying that the state would socialize losses in a credit crisis because the high private sector savings allows them to do so. The comments about a burgeoning shadow financial system in China and the government’s lack of control are interesting. The video runs seven minutes.

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