Posted on 08/11/2002 5:07:19 PM PDT by AIG
BEIJING -- China's economic-reform policies aren't likely to change after an expected leadership transition to be finalized by March next year, Moody's Investor Services Inc. said Thursday in its annual country update.
The international ratings agency also based its assumptions on continued peaceful economic integration between the mainland and Taiwan, despite a recent heightening in cross-strait tensions.
Moody's assigns China's sovereign debt an A3 rating and Baa1 is the highest rating currently assigned to non-sovereign issuers in China, including state- owned financial institutions.
Since 1979, China has adopted a reform strategy to transform its former command model into a modern market economy while retaining state-ownership of strategic industries.
China's ruling Communist Party is expected to hold its five-year congress before the end of this year to work out a leadership transition to be endorsed by the National People's Congress in March.
The Moody's report predicts a continuation of China's pragmatic economic reform policies regardless of the leadership changes that come out of the upcoming party Congress and next year's National People's Congress.
Skillful policy management will be required to maintain social stability as China restructures its state sector and advances its modernization drive, the report said.
"We recognize that China's leadership realizes that economic reform will help to ensure future investment and growth - a position that was supported by China's accession to the World Trade Organization," Moody's Vice President Thomas Byrne, author of the annual update, said in a statement.
Despite rumblings in the past few weeks on either side of the Taiwan Strait, sparked initially by Taiwan President Chen Shui-bian's threat for the island to go down its own road, Moody's bases its assumption on there being no escalation beyond the current war of words.
Taiwan and the People's Republic of China have been split since 1949 at the end of a civil war that left the Communist party in control of the mainland. Beijing under its "One China" principle considers Taiwan as a breakaway province.
Mr. Chen on the weekend said the two were separate countries and that the island should change its constitution in order to hold a referendum on Taiwan's future.
Describing Beijing's enforcement of its "One China" principle as "another policy challenge," Moody's said the situation may evolve in a number of ways, without elaborating.
Despite this uncertainty, Moody's said its ratings for China presume an expansion of cross-straits economic ties against a background of peaceful political engagement.
Providing an assessment of China's current economic outlook, Mr. Byrne said despite global economic disturbances, China's balance of payments has continued to fare well.
"The external position will likely remain strong enough to withstand foreseeable pressures, either external or domestic," he said. "China's closed capital markets add insulation to external shocks."
No A3 is equivalent to A-. Aaa is Moody's equivalent to triple-A.
You have to know about how sovereign ratings work a little bit too, but "A3" is Moody's shorthand for "AAA."
You are right. A3 is not the highest. Aa1 would be the highest. A3 is the next thing to a B grade, but without being a B, which is a subjective judgement in my book.
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