HKSAR Government's response to Moody's announcement of change to Hong Kong's credit rating

     In response to the announcement by Moody's Investors Service yesterday (May 24) to downgrade the long-term credit rating of Hong Kong to "Aa2" from "Aa1", the Financial Secretary, Mr Paul Chan, made the following comments:

     "We strongly disagree with the assessment by Moody's. Despite the very close economic relationship between Hong Kong and the Mainland, we do not agree with the decision by Moody's to mechanically downgrade Hong Kong's rating following its downgrading of China's credit rating.

     For example, Moody's observed that the banking sector is facing increasing exposure to the Mainland. But as a matter of fact, the majority of these loans have been made to large state-owned enterprises and multinational companies, and the credit quality of these borrowers is high. The associated classified loan ratio has also decreased since last year. Furthermore, under the Hong Kong Monetary Authority's close supervision, banks in Hong Kong have maintained good underwriting standards. Banks have also strengthened their risk on Mainland-related lending. 

     "Citing the Belt and Road Initiative as an example, Moody's considers that Hong Kong's involvement in the Initiative will render Hong Kong's economy and financial system increasingly closely related to the Mainland's. I wish to point out that the objective of the Belt and Road Initiative is not to attract investment into China, but to promote international co-operation and achieve mutual benefits. Investment decisions made by Hong Kong businesses on Belt and Road-related projects are all based on commercial considerations. Contrary to the observation by Moody's, Hong Kong's participation in the Belt and Road projects will help our businesses and professionals enter new markets along the twin corridors, thereby creating benefits to Hong Kong's economy.

     "I wish to reiterate that Hong Kong has been exercising a high degree of autonomy and enjoying executive, legislative and independent judicial power, including that of final adjudication in accordance with the Basic Law. Both the Central People's Government and the Hong Kong Special Administrative Region Government remain firmly committed to upholding the principle of "one country, two systems". This principle is also the vital foundation for sustaining Hong Kong's economic growth. The comments by Moody's about formulation and implementation of Hong Kong's public policy are purely speculative and groundless.

     "We are of the view that Moody’s has overlooked the sound economic fundamentals, robust financial regulatory regime, resilient banking sector and strong fiscal position that Hong Kong has. These elements will continue to enable the economy to embrace the challenges ahead arising from the changing external environment.

     As the global economic environment further improved and external demand strengthened, the Hong Kong economy grew notably by 4.3 per cent in real terms in the first quarter of 2017 over the corresponding period a year earlier, sustaining the improving trend that began in the second quarter of last year. At the same time, the labour market remained in a state of full employment, with total employment rising to a new quarterly high in the first quarter. Domestic demand also held up well, supported by favourable employment conditions and more positive business sentiment.

     "The International Monetary Fund (IMF) Staff Report released in January once again reaffirmed the Government's strong policy frameworks, including prudent fiscal policy and vigorous regulation and supervision of the financial system. The IMF recognised that the ample buffers built over the years had bolstered the resilience of Hong Kong to weather a less favourable environment.

     "I must reiterate that as the second-largest economy in the world, China has been the key source of growth for the global economy in recent years, contributing more than one-third of world's economic growth in 2016. The Mainland's economy has been developing steadily in 2017, growing by 6.9 per cent year on year in the first quarter. In light of the continued progress of economic structural reform, the growth of the Mainland economy is increasingly driven by domestic demand and the service sector, and is moving towards a pattern of more sustainable development. There is also ample policy room for meeting future challenges. I also noted that the Ministry of Finance, in response to earlier media enquiries, has remarked that the decision by Moody's to downgrade the China's sovereign rating was based on "inappropriate methods" and that the agency has overestimated the difficulties facing the Mainland's economy while underestimating the Central Authorities' capability in deepening supply-side structural reform as well as boosting domestic demand."

Ends/Thursday, May 25, 2017
Issued at HKT 0:34