Standard & Poor's (S&P) has raised China's credit rating as the country's surging foreign-exchange reserves and stable economy have withstood a global slowdown.

The rating firm said during a telephone conference yesterday that it has lifted China's long-term-outlook rating from A to A+, and its short-term sovereign credit from A- to A-1+, indicating a "stable" outlook.

The world's fastest-growing economy expanded by more than 10 percent for a 10th-straight quarter in the three months ended in June, and the foreign-currency reserves reached $1.8 trillion.

China's economy will embrace a healthier growth momentum and record a 9-to-10 percent growth this year, instead of an overheating figure of 11 percent, said Tao Dong, Credit Suisse's chief economist for non-Japan Asia. He said the economy will be mainly supported by robust domestic demand.

"The rating upgrade is motivated by China's improving fiscal and external position," S&P credit analyst Kim-eng Tan said. "These improvements to the government balance sheet will offer greater resilience to deal with the shocks of a potential sharp economic downturn."

China's rating got an upgrade for the first time in two years, and S&P said it will keep the rating for the next year or two if there are no fundamental changes in the country. "We will watch China's economic reform closely, especially in the financial sectors," Tan said.

Tao at Credit Suisse said that although major banks in China announced upbeat results in recent years as their earnings improved greatly, their lending practices were not improved and could be harmful to the country's financial market.

S&P, however, thinks the policy banks wholly owned by the government deserve optimistic ratings.

Credit ratings have been raised for four Chinese policy financial institutions - the Agricultural Development Bank of China, Export-Import Bank of China, China Development Bank and China Export & Credit Insurance Corp.

"These lenders have strong support from the authorities; if anything happens, the government will stand by them," S&P said.

The rater also upgraded its outlook toward Hong Kong, citing the region's healthy fiscal performance. Fiscal reserves are estimated to be enough to cover 25 months of spending, and Hong Kong's net external-assets position remains strong at 97 percent of the gross domestic product.

"Hong Kong has one of the strongest government balance sheets in the region," it said.

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(HK Edition 08/01/2008 page2)