The Government of the Hong Kong Special Administrative Region (HKSAR) says it disagrees with decision by Moody’s Investors Service to downgrade the long-term credit rating of Hong Kong to "Aa2" from "Aa1.”
"We strongly disagree with the assessment by Moody’s,” says the Financial Secretary, Paul Chan, in a statement. “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.”
Cha noted, for example, that Moody's observed that the banking sector is facing increasing exposure to the Mainland. But as a matter of fact, he said, 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, the Secreaty said.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.
High degree of autonomy
Chan said emphasized 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.
“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,” said Chan.
Chan added that 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 labor 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 favorable employment conditions and more positive business sentiment.
"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.”