(RTTNews) - Monday, Moody’s Investors Service raised China’s ratings outlook to ‘positive’ from ’stable’ citing resilient and relatively stable macroeconomic performance during the turbulence of the past year. The agency also revised Hong Kong’s outlook to ‘positive.’

The rating action affects the Chinese government’s A1 foreign and local currency bond ratings, as well as China’s A1 country ceilings for foreign and local currency bank deposits, and for its A1 ceilings for foreign and local currency bonds. The short-term foreign currency rating remained at P-1. The last rating action on the People’s Republic of China was taken on July 26, 2007, when Moody’s raised China’s ratings to A1 from A2.

The rating agency noted that China’s strong credit fundamentals would possibly resume an improving trend as the economy emerges from the effects of the global recession. According to Moody’s, robust international investment position insulated the nation from the external crisis and reduced its risk of balance of payment crisis to a negligible level.

Tom Byrne, Moody’s Senior Vice President assessed that with net foreign assets equal to 36% of GDP, bolstered by more than $2 trillion in official foreign exchange holdings, only a handful of highly rated advanced industrial economies, such as Norway, Switzerland, Japan, Hong Kong and Singapore, have a stronger international investment position than China.

The stimulus steps taken by the government had only a modest impact on government finances and do not appear to pose unmanageable risks to the government’s very high financial strength, said Byrne. Further, government debt is set to stay low and affordable with a policy intention to contain the budget deficit to 3% of GDP this year and in 2010.

Moody’s said, “While China’s economic recovery seems well established, underlying risks will be monitored, and further positive rating actions over the outlook horizon period of 12-18 months will hinge on continued macroeconomic and financial sector stability and on an assessment that China’s state-sector-centric economic stimulus program has not distorted long-term growth prospects, or given rise to destabilizing asset bubbles.”

Elsewhere, Moody’s changed its outlook on the A1 long-term deposit, senior unsecured, and issuer ratings for seven Chinese banks to ‘positive’ from ’stable.’ The seven banks are Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China, China Development Bank, Export-Import Bank of China and Agricultural Development Bank of China.

The rating action on China prompted corresponding action on Hong Kong’s outlook. The agency upgraded its outlook on Hong Kong’s Aa2 government bond ratings to ‘positive’ from ’stable.’

Owing to Hong Kong’s status as a Special Administrative Region of China and because of the increasing financial and economic integration of the SAR and Mainland China, Hong Kong’s rating is marginally lower than its intrinsic credit strength, said Moody’s lead analyst for Hong Kong, Steven Hess.

Although Hong Kong’s rating is separate from that of China, it is linked, and the residual China effect constrains Hong Kong’s intrinsic upward rating potential. The agency assessed that the SAR’s government financial strength as very high. Also, Hong Kong’s high per capita income, institutional strength, separate currency and international reserves, and different legal system all justify a rating higher than that of China, said the rating agency.

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Posted in Categories: Economy, Forex, Japan, Releases, Switzerland, USA.

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