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(S&P Global Ratings) downgraded the long-term credit rating of Chinese government debut (from A+ to

Discussion in 'China & Asia Pacific' started by Averageamerican, Sep 30, 2017.

  1. Averageamerican

    Averageamerican Colonel ELITE MEMBER

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    September 28, 2017: In the United States a major credit rating company (S&P Global Ratings) downgraded the long-term credit rating of Chinese government debut (from A+ to AA-) on the 21st. The other two major American credit rating companies (Moody and Fitch) had done a similar downgrade earlier this year. This is mainly about too much debt and how much of that debt is uncollectable (“bad” debt). To make matters worse Chinese banks are suspected of using the same deceptive banking methods (trying to repackage bad debt as good debt) that brought on the 2008 financial crises in the United States. That economic crisis went worldwide and the Chinese government was forced to use a lot of debt to keep the economy moving. But if too much of that debt is bad there is increased risk of an economic crises that would halt economic growth and take years to fix. The government has made this worse by allowing economic data reporting to be “adjusted” to suit the needs of local (provincial) officials. That was bad enough (and is now being fixed) but during several decades of rapid economic growth this flawed data allowed the state owned banks (which still dominate the economy) to lend too much money. Thus debt in China keeps rising. It went from 254 percent of GDP (nearly three times what it was before 2008) in 2015 to 277 percent in 2016 and unless the government can develop some solutions it will be over 300 percent by the end of the decade. What makes this pile of debt trap so toxic is that, much, if not most of this debt consists of loans that the borrower cannot repay, or not repay in a timely fashion. This is reflected in the rising (54 percent more in 2016) incidence of bankruptcy. The government would prefer to avoid the bankruptcy process because it is embarrassing, turns bad debt into losses and exposes details of how the bad debt mess works. The growing bad debt problem, more than the South China Sea dispute, is what keeps Chinese leaders up at night. GDP growth is slowing, it was down to 6.7 percent in 2016 and the new American government is openly discussing economic retaliation against China. That is scarier than the American military because it can be more safely used by the Americans and the Chinese government refuses to discuss this vulnerability for obvious reasons. It is believed that nearly $600 billion worth of these loans are uncollectable. Chinese banks are trying to avoid writing off these bad loans (which hurts bank profits and puts some of them out of business). Many banks are repackaging the bad loans in an attempt to sell them off for far more than they are worth. Chinese banks call these new items WMPs (wealth management products) and assure buyers they are legitimate but offer these bond-like securities with much higher interest rates than other corporate or bank bonds.
     
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  2. RMFAN

    RMFAN Lieutenant FULL MEMBER

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    https://en.wikipedia.org/wiki/Credit_rating

    Credit rating company (S&P Global Ratings) downgraded the long-term credit rating of Chinese government debut (from A+ to AA-) on the 21st.

    AA-, Rating description still belong to High grade.


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    https://en.wikipedia.org/wiki/List_of_countries_by_credit_rating


    [​IMG] India BBB+ Stable 2014-09-26, BBB+, Lower medium grade.

    [​IMG] Russia BB+ Positive 2017-03-17, BB+, Non-investment grade speculative= Junk.


    [​IMG] United States AA+ Stable 2013-06-10, AA+ , High grade
     
  3. GuardianRED

    GuardianRED Captain FULL MEMBER

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    Really ???

    When it BB+ ie positive - become - Junk!?

    BB+ :An obligor is LESS VULNERABLE in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitments.

    +

    Why leave out ??

    [​IMG] Pakistan B Stable 2016-10-31

    B : An obligor is MORE VULNERABLE than the obligors rated 'BB', but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments.

    Do post correctly - and NOT just to suit your narrative!!!
     
  4. RMFAN

    RMFAN Lieutenant FULL MEMBER

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    http://www.investopedia.com/terms/j/junkbond.asp

    What is a 'Junk Bond'

    A junk bond refers to high-yield or noninvestment-grade bonds. Junk bonds are fixed-income instruments that carry a credit rating of BB or lower by Standard & Poor's, or Ba or below by Moody's Investors Service. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.


    BB+ , Non-investment grade speculative, Junk grade.

    https://www.money-zine.com/definitions/investing-dictionary/speculative-grade-bonds/
    Securities with ratings of Ba1 (Moody's) and BB+ (S&P / Fitch) are considered non-investment grade or speculative-grade bonds.

    Also known as junk bonds, speculative-grade bonds carry a higher risk of default relative to investment-grade securities. Junk bonds will provide investors with higher yields, which compensate them for the additional risk they take when lending these corporations funds. In fact, some institutional investors have policies prohibiting them from holding non-investment grade debt. If the issuing entity eventually improves its financial outlook, and is rewarded with an upgraded rating, the value of this debt can increase substantially, thereby providing holders with a capital gain too.


     
    Last edited: Sep 30, 2017
  5. GuardianRED

    GuardianRED Captain FULL MEMBER

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    ??? again changing the narrative!!!


    A junk bond refers to high-yield or noninvestment-grade bonds. Junk bonds are fixed-income instruments that carry a credit rating of BB or lower by Standard & Poor's, or Ba or below by Moody's Investors Service. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.

    and u haven't answer the Question

    [​IMG] Russia BB+ Positive 2017-03-17, - where it is BB'+' which is HIGHER than BB become junk?

    From your post any rating with BB and lower is consider as junk so does that mean [​IMG] Pakistan B Stable 2016-10-31 is also JUNK!

    Do get your post right and NOT JUST TO SUIT your narrative
     
  6. randomradio

    randomradio Colonel Technical Analyst

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