S & P highlights the risks of credit boom in China in the context of a trade war

TOKYO (Reuters) – Standard & Poor's Thursday expressed concern that China's sovereign rating could be under pressure if policymakers reverted to rapid credit growth to protect the country's economy. economics of the consequences of a trade war with the United States.

The quarrel between the world's two largest economies in tariffs and market access is not expected to degrade China's rating next year, said Kim Eng Tan, senior director of ratings. sovereigns of S & P for Asia-Pacific,

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However, the longer the conflict lasts, the more Chinese decision makers will be tempted to loose the reins of loans, Tan told Reuters during an interview.

"We have come to a point where (Chinese) policymakers are more worried about the economy and the deleveraging is on hold," Tan said.

"The longer the situation, the more likely the government could reverse the deleveraging to the point of worrying more about the rating."

Tan added that he did not expect S & P to degrade China's A note more with stable prospects simply because the economy is slowing down because of the threat of tariffs higher in the United States.

The United States this year received additional duties of 10 to 25 percent on Chinese goods worth $ 250 billion to punish what they call the country's unfair trade practices, human rights. customs duty of 10% to reach 25% on 1 January.

Slower trade flows would dampen growth in other Asian countries, but fiscal indicators have improved in many economies, so there is no major risk of degradation, Tan said.

The threat of capital outflows declined after the Federal Reserve chairman suggested that US interest rates could not rise further, which would also ease pressure on sovereign ratings in Asia, he said.

Current account surpluses and large foreign exchange reserves also serve as buffers for Asian countries in the event of a financial crisis, he said.

Tan expressed his concern about the potential problems of political stability in Malaysia in the future. Prime Minister Mahathir Mohamad said he would only keep the post for two years.

If the current quadripartite coalition could not achieve a smooth transition, it would pose a risk to Malaysia's A-grade with a stable outlook, Tan said.

(Report by Stanley White, edited by Shri Navaratnam)