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S&P lowers outlook on China, Hong Kong to negative

Standard & Poor's Ratings Services said March 31 that itlowered its outlooks on China and Hong Kong to negative from stable.

The rating agency said it lowered the outlook on China's long-termrating to negative as the country's economic rebalancing is likely to proceedmore slowly than previously expected and fail to curb the risks ofcredit-fueled growth.

S&P also affirmed China's long-term sovereign creditratings at AA-, short-term sovereign credit ratings at A-1+, long-term GreaterChina regional-scale ratings at "cnAAA" and short-term Greater Chinaregional-scale ratings at "cna-1+."

The rating agency said that it expects the economic andfinancial risks to the Chinese government's creditworthiness to graduallyincrease and believes the country will show modest progress in economicrebalancing and credit growth deceleration over the next five years.

S&P said it could downgrade China's ratings in 2016 or2017 if the government pushes to increase credit at a significantly faster ratethan the nominal GDP growth, as such a move would likely weaken the economy'sresilience to shocks.

China's ratings may stabilize if the government adoptspolicies to moderate credit growth at levels more in line with nominal GDPgrowth, accompanied by signs that rebalancing will progress more quickly thanexpected, S&P said.

Following S&P's downgrade on China, it also lowered itsoutlook on Hong Kong's long-term rating to negative given the city's high degreeof financial and economic linkage to China.

The rating agency also affirmed Hong Kong's long-term issuercredit ratings at AAA and short-term issuer credit ratings at A-1+. The city'slong- and short-term Greater China regional-scale ratings were also affirmed at"cnAAA/cnA-1+."

S&P said it could downgrade or revise Hong Kong'sratings if it makes a similar ratings action on China. It added that it couldalso downgrade Hong Kong's ratings if its political polarization worsens to apoint where it comprises policymaking and the business environment.

S&P Ratings andGlobal Market Intelligence are owned by McGraw Hill Financial Inc.