Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
 
Scope completed the monitoring review for the People’s Republic of China (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A+/Negative; short-term local- and foreign-currency issuer ratings: S-1+/Negative) on 22 November 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The People’s Republic of China’s A+ rating is underpinned by the following credit strengths: i) a large and diversified economy and high growth potential compared with similarly rated peer countries; ii) strong external resilience, underpinned by high foreign exchange reserves and low external debt; and iii) the central government’s unique scope to facilitate effective reforms to influence economic and financial stability, although this can have credit-negative implications if it reduces the quality of governance and policymaking. These factors increase the country’s resilience to economic shocks including the outbreak of the Covid-19 pandemic as well as credit challenges in the private sector. Challenges relate to: i) significant structural public sector deficits and a rising public sector debt stock; and ii) a high level of total non-financial sector debt.

The Negative Outlook indicates that risks to the ratings are tilted to the downside over the next 12 to 18 months.

The rating/Outlook could be downgraded if, individually or collectively: i) a financial or economic shock materialised, impairing economic growth over the medium term; ii) a protracted fiscal deterioration and/or crystallisation of contingent liabilities resulted in a weaker fiscal outlook and a continued rise in the debt trajectory beyond Scope’s baseline; and/or iii) China’s external resilience weakened materially.

Conversely, the ratings/Outlook could be upgraded or the Outlook revised to Stable if, individually or collectively: i) China’s public finances strengthened, resulting in an improvement in the public debt trajectory; ii) economic and financial reforms strengthened financial stability and/or the sustainability of the economic growth outlook; and/or iii) the renminbi made substantive gains as a reserve currency.

For the updated report accompanying this review, click here.

The methodology applicable for the reviewed ratings and rating Outlooks (Sovereign Rating Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Eiko Sievert, Director.

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