China’s Credit Rating Downgrade Likely Have Little Impact on Chinese Financial Market and Regional Economies (Business Brief No.3682 Full Ed.)

On May 24, Moody's Investors Service lowered China's sovereign credit rating by one notch to A1, from Aa3 previously, but raised their outlook to stable, from negative. We at KResearch have preliminary assessed that any immediate impact of that downgrade on the Chinese financial market, their Yuan (CNY) or their external stability will be limited, in particular fund flows,because foreign investors do not have a significant role in their financial market.

However, that downgrade may affect the financial costs of Chinese companies somewhat when borrowing via the debt instrument market, which, as such, affects their debt servicing ability going forward. Our assessment shows that their borrowing via the debt market accounts for about 16 percent of the total Chinese private/corporate debt. Excluding state-owned enterprises, such borrowing by private enterprises accounts for 29 percent of the total Chinese private/corporate debt.

Moody's decision to lower China's sovereign credit rating reflects concern towards their financial system stability, stemming from China's inefficient and distorted financial resource allocations as a result of government policies that have led to growing corporate debt. This could weigh on their economy ahead, although little risk should be incurred to their financial system.

The impact of that downgrade on Thailand will not be significant towards our links with regional financial and capital markets because it is based largely on China's internal factors, thus should not precipitate capital outflows from emerging economies. Its impact on our real economic sector via exports, investments and tourism should be limited, as well. KResearch expects that Thai exports to China will grow 7 percent YoY, or within 5.5-8.5 percent in 2017.