China's Finance Minister Brushes Off Concern Over Outlook Cut

  • Lou says Moody's downgrade didn't spur irrational market moves
  • Leaders understand where rating agency's worries come from

Chinese Finance Minister Lou Jiwei downplayed a decision by Moody’s Investors Service Inc. to cut his country’s credit-rating outlook, saying leaders “didn’t care that much” because the move had little market impact.

The March 2 downgrade didn’t lead to irrational market behavior or aggressive short-selling, Lou said at the China Development Forum, a gathering of world business leaders and Chinese government officials. He noted that the offshore yuan even rose afterwards.

“Internationally there was no ensuing action, for example shorting on China, so we didn’t care that much about it,” Lou said. He was responding to a question from Jin Liqun, the president of the China-backed Asian Infrastructure Investment Bank, who asked whether leaders would communicate with ratings agencies after the downgrade.

Moody’s cited China’s surging debt burden and questions over the government’s ability to enact reform for its decision to lower the country’s credit-rating outlook to negative from stable. The next day, Moody’s cut the outlook on China’s biggest phone company and two of its largest banks.

Lou told the forum that Moody’s was concerned about local-government debt in China and whether the country could carry out promised structural reforms, including getting rid of overcapacity.

“I understand where these worries are coming from,” he said.

China must address short-term risks including “very high” levels of corporate debt, Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said at the same forum. Sectors with especially high leverage include cement, steel, coal and flat glass, Gurria said. The OECD estimates corporate debt now stands at 160 percent of China’s gross domestic product, according to Gurria.

— With assistance by Heng Xie, and Kevin Hamlin

Before it's here, it's on the Bloomberg Terminal.