Hong Kong

Moody's on Wednesday (Dec 6) put Hong Kong, Macau and a large number of Chinese state-owned banks and firms on a downgrade warning. The development has come just a day after a similar move by the agency on the Chinese mainland government's ratings.

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Moody's said that the downgrade warning was due to Hong Kong's tight political, institutional, financial and economic links with China under the "One Country, Two Systems" arrangement.

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Hong Kong has been rated one step higher at Aa3 versus China's A1. It hit out at Moody's decision and released a statement that said its ties with Beijing were "a source of strength for long-term development."

Moody's has also said that after the passage of a National Security Law in 2020 and changes in Hong Kong's election system, it was expected that the city's autonomy would be eroded incrementally.

The Chinese economy has slowed down, and this may potentially affect Hong Kong as well. This may in turn affect the Hong Kong government's fiscal buffers.

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Moody's also lowered the prospects of 26 financing vehicles for local governments in China and for four state-owned enterprises. Together, all 30 of them were on the "review for downgrade". This normally means that a decision will be made about this within three months.

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The ratings agency cut the outlooks of eight Chinese banks to negative. However, these banks were not put on review for a downgrade.

The banks included, the Agricultural Development Bank of China, China Development Bank and the Export-Import Bank of China (2544.HK), as well as five large state-owned commercial banks: Agricultural Bank of China (601288.SS), Bank of China (601988.SS), China Construction Bank (601939.SS), Industrial & Commercial Bank of China and Postal Savings Bank of China (1658.HK).

(With inputs from agencies)