S&P upgrades H.K. ratings, affirms China's credit standing

Asian Economic News, Feb 12, 2001

HONG KONG, Feb. 9 Kyodo

Standard & Poor's (S&P) said Friday it has raised Hong Kong's long-term foreign currency sovereign credit rating to A-plus from A, the first upgrade of the territory's standing since the rating cut in August 1998.

The U.S. credit-rating agency also improved the territory's long- and short-term local currency sovereign credit ratings to AA-minus and A-plus-1 from A-plus and A-1, respectively, Friday.

The outlook on Hong Kong's long-term ratings is stable, the agency said in a statement, adding the territory's short-term foreign currency rating remains A-1.

S&P, meanwhile, affirmed China's BBB long-term and A-3 short-term foreign currency sovereign credit ratings, with a stable outlook.

''The upgrade reflects the effectiveness of Hong Kong's administrative and economic institutions in maintaining its strong financial profile, demonstrated by their track record since mid-1997 following the transition to Chinese sovereignty,'' S&P said.

Hong Kong's credit standing is higher than that of China to reflect the territory's fiscal, financial and institutional autonomy, it said.

The agency noted that Hong Kong has been able to administer its own affairs within the limited autonomy provided by the Basic Law, the territory's post-handover Constitution, despite economic and political challenges.

Among the challenges are constitutional controversies over the demarcation of authority between Hong Kong courts and Chinese authorities, the clash between Hong Kong's more liberal political culture and Beijing's desire to strictly limit political expression that it perceives may undermine its own standing and the growing demand in Hong Kong for better public accountability of government and wider participation in decision making, it said.

''Its financial system, public finances, and commitment to prudent economic policies have emerged unscathed despite the Asian financial crisis,'' S&P said.

Hong Kong's economy has maintained its competitiveness through a rapid adjustment in costs and prices, and the banking system is expected to become stronger in the coming years, the agency said.

The gradual sale of the Hong Kong government's share portfolio bought in the local stock market in August 1998 to deter speculation against the currency has eased concern about future government interference in financial markets, it said.

China's impending entry into the World Trade Organization has enhanced Hong Kong's long-term growth prospects, S&P said.

It added the Hong Kong rating outlook is stable because it expects political debates and any reform in the territory will take place within the Basic Law's framework and that both Hong Kong and Chinese authorities will maintain public confidence in the territory.