Hong Kong keeps S&P’s top ‘AAA’ rating despite Moody’s cut

Hong Kong has maintained its “AAA” rating since it was first assigned in 2010, because the city’s economic, financial and governance systems were still separate and very different from the rest of China, in line with the “one country, two systems” framework, S&P said | Photo: Shutterstock

Hong Kong’s economy has become more integrated with China’s over the past 20 years since the handover – but the city continues to be higher rated, at “AAA”, reflecting the views there are still traditions that are distinct to it and not mainland China, according to S&P Global Ratings.

Its top rating is in contrast with Moody’s which downgraded Hong Kong by one notch to Aa2 last month after it cut China’s sovereign credit to A1 from Aa3 reflecting prediction that domestic debt is expected increase further in the coming years. Fitch, meanwhile, rates China at A-plus.

Moody’s had said Hong Kong could face bigger financial risks and see its credit ratings drop further with its growing involvement in China’s plan to open up trade along a new ancient silk trading routes, the country’s “Belt and Road Initiative”.

But the special administrative region’s (SAR) exceptional degree of autonomy in many policy areas is a key reason why its credit ratings remain stronger, according to S&P.

“Hong Kong’s policy autonomy and strong financial resources are expected to insulate the territory against negative credit developments in the rest of the country to a larger extent than other Chinese sub-national governments,” said S&P analysts Kim Eng Tan and Christopher Lee.

Hong Kong has maintained its “AAA” rating since it was first assigned in 2010, because the city’s economic, financial and governance systems were still separate and very different from the rest of China, in line with the “one country, two systems” framework, S&P said.

Deepening integration with China brings tremendous opportunity to the former British colony, and successive SAR governments since 1997 have shown that they are adept to changes and have faced major challenges successfully, S&P said.

Some recent events, however, it noted, have also led some individual citizens, as well as legislators and public figures, to question the degree of China’s commitment to Hong Kong’s mini-constitution, known as the Basic Law.

S&P blamed China’s interpretation of the law as effectively preventing two pro-independence legislators from taking office in late 2016, an episode viewed as the central government’s reaction to a development that could threaten its territorial integrity.

While S&P said competition and economic dependency on the mainland has increased for Hong Kong, more mainland companies are operating in the SAR contributing to price and asset inflation.

The S&P report also grave strong mention to the city’s housing market, which is said has made home ownership increasingly unlikely for many young people, and waiting lists for public housing are getting longer.

Growing income disparity has become more widespread in Hong Kong, and if these negative sentiments persist and spread, the government could face more constraints on its policymaking, it added. There could also be rising pressure for expansionary budgetary spending or a reduction in the openness of the Hong Kong economy, Tan and Lee said.

Hong Kong’s outlook is negative, in line with the outlook on China’s sovereign debt, S&P said.

Read the original story on the South China Morning Post

comments powered by Disqus

More from Asia Pacific

Poll: Canadian millennials more pragmatic, less value-driven when considering engagement with Asia

Asia Pacific Foundation report finds that, while the 18-24 demographic knew the least about Asia, they are also the most positive - with 61% holding ...

Read Article

Investment group pushes One Belt, One Road business

Food expo could give B.C. first taste of potential from China’s massive infrastructure plan

Read Article

Trump cedes trade leadership to China’s Xi Jinping

Read Article

Pakistan: Power project cancelled

Read Article

India: Air pollution chokes capital

Read Article

Subscribe to our mailing lists

You may withdraw your consent at any time.

* indicates required

Newsletters

* You can modify your newsletter subscriptions at the bottom of any newsletter you receive.
Business in Vancouver Media Group
303 West 5th Avenue, Vancouver, British Columbia
V5Y 1J6 · Canada
604-688-2398
×