Hong Kong criticizes credit downgrade

Hong Kong on Thursday criticized a decision by Moody's to cut the city's credit rating, just hours after China's credit rating was downgraded over concerns of ballooning debt and slowing economic growth.

The credit agency slashed Hong Kong's local currency and foreign currency issuer rating from Aa1 to Aa2. But it increased its outlook from negative to stable, citing the government's cash reserves, meaning further downgrades were unlikely.

Moody's cut mainland China's long-term local currency and foreign currency issuer ratings by one notch to A1 from Aa3 on Wednesday, the first downgrade since the 1989 Tiananmen Square protests.

"We expect direct government, indirect and economy-wide debt to continue to rise, signaling an erosion of China's credit profile," Moody's said in a statement on Wednesday.

China's economy has been fueled since the 2008 financial crisis by unregulated and risky lending tied to state-owned banks and enterprises, leading to a pile of questionable and murky debt.

Tighter links

"The downgrade in Hong Kong's rating reflects Moody's view that credit trends in China will continue to have a significant impact on Hong Kong's credit profile due to close and tightening economic, financial and political linkages with the mainland," it said in a statement.

Hong Kong's participation in China's Belt and Road initiative brings the economy and financial systems closer together, Moody's also said.

"The institutional features which grant Hong Kong, at present, a degree of political and economic independence together with the SAR's (Special Administrative Region) intrinsic credit strengths, allow Hong Kong's rating to exceed that of China. But the two ratings, like the two regions, remain closely linked," the bond credit rating business said in its statement.

Hong Kong's Finance Secretary Paul Chan said the credit agency "mechanically” downgraded the city's credit without taking into account fundamentals.

"We are of the view that Moody's has overlooked the sound economic fundamentals, robust financial regulatory regime, resilient banking sector and strong fiscal position that Hong Kong has," Chan said.

He also said the Belt and Road initiative offered numerous economic opportunities for the international financial hub. 

Beijing took control of Hong Kong in 1997, but the city is semi-autonomous. It also enjoys greater liberties compared to the mainland.

The wording in Moody's statement about a "tightening" of economic, financial and political ties raised eyebrows in the city state where China's influence is a major political issue.

cw/jm (AFP, AP)