Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereign, sub-sovereign and supranational issuers. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for China (A+/Negative; S-1+/Negative) on 13 August 2020. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Scope’s assignment of China’s A+ ratings reflects the country’s significant external sector resilience, underpinned by high levels of foreign-exchange reserves (USD 3.15trn as of July 2020), low external debt and the gradual internationalisation of the renminbi. Moreover, despite 2020’s economic crisis, trend growth in China’s large and diversified economy remains very high compared with that of its rating-relevant sovereign peers. The government has, moreover, the unique capacity to facilitate rapid and effective reform to address economic and financial stability risks when dealing with longer-term as well as new economic challenges. However, risks to China’s sovereign ratings remain skewed to the downside. The general government deficit will rise significantly this year (to over 11% of GDP) with non-augmented general government debt expected to increase to 89% of GDP by 2024 under a baseline – an elevated figure for a middle-income economy, from 54% as of 2019 and only 27% as of 2008. The level of non-financial sector debt is high and increasing – posing long-term systemic risk. These challenges are reflected in the Negative Outlook.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Public Finance and Sovereign Ratings, 21 April 2020) is available on https://www.scoperatings.com/#!methodology/list.

This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director

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