Moody's keeps China's rating outlook positive

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China's sovereign rating outlook remains positive even though economic growth is expected to slow to between 7.5 and 8.5 percent this year and next, Moody's Investors Service said today in a report.

The outlook for China's Aa3 foreign and local currency bond ratings are positive, supported by favorable medium-term economic growth prospects and strong government debt dynamics, the agency said.

Premier Wen Jiabao lowered China's growth target to 7.5 percent from 8 percent for this year at the National People's Congress meeting last month, which shows the government's determination to shift the growth mode towards domestic consumption and away from investment and exports.

Moody's said China's real GDP growth will fall from the 10.3 percent pace of the past decade, to a range of 7.5 to 8.5 percent in 2012 and 2013.

It also said firm control over local government finances and the implementation of a new wave of financial reform are necessary for China to sustain rapid and stable growth throughout this decade.

Standard & Poor's Rating Services made a similar projection in March, saying China's economy will grow 8.3 percent this year.

Moody's said in the report that "Rapid economic growth, coupled with low deficits and debt of the central government, have provided ample fiscal headroom to manage contingent risks in local government finances, or in the banking system. Political, economic, and financial event risks, which could prompt an abrupt, multi-notch downgrade, are considered as low and manageable, but not unimaginable."

The agency noted the global financial crisis is slowing China's growth, but trade and financial vulnerability to the euro area recession is relatively moderate to low.

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