Thursday, May 25, 2017

Moody's makes Modi smile with China's first rating downgrade in 30 years

The downgrading signals to the international community that all is not well with China, especially when it is launching its ambitious one-belt one-road plan.

Has ratings firm Moody's Investors Services just given Prime Minister Narendra Modi a chance to drive the Indian economy faster? Moody's downgraded China's long-term local and foreign currency issuer ratings today by one notch to an A1 rating from AA3, citing expectations that the financial strength of the world's second biggest economy would erode in the coming years. 

"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," Moody's said. Rating downgrade will raise borrowing costs for China. 

The downgrade is not likely to give India an edge over China as its rating still remains among the highest. Yet, the downgrading signals to the international community that all is not well with China, especially when it is launching its ambitious one-belt one-road initiative which aims at global dominance. 

Though India lags far behind China in several fields, the communist country is getting wary of India's gains in foreign direct investment (FDI), technology and manufacturing. 

China faces dwindling foreign exchange reserves when India is aggressively pushing itself as a destination for foreign investment. Recently, President Xi Jinping had vowed to open up China like never before. Premier Li Keqiang has also announced that foreign firms would be treated the same as domestic firms when it comes to licence applications, standard setting and government procurement and would enjoy same preferential policies under Made in China 2025 initiative. In 2015, India was for the first time the leading country ($63 billion) in the world for FDI by capital investment, overtaking China ($56.6 billion) and the US ($59.6 billion). This had set the alarm bells ringing in the Chinese establishment. 




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