Paul Chan, the Financial Secretary of Hong Kong wrote a strongly worded blog on May 28 where he criticized the decision taken by Moody's Investor Services to downgrade the debt rating of Hong Kong during the fourth week of May. Moody's slashed its ratings on debt accrued by China in May 24 after a long time. The last such a thing happened was in 1989. Hong Kong followed a few hours later. The cut was effected on foreign currency and local currency issuance from the previous Aa1 to Aa2. The outlook changed from stable to negative. This is the first time, the Hong Kong territory found its rankings down after the 1998 financial crisis.
Chan was appointed to his post in January. The Financial Secretary of Hong Kong elaborated on his point saying that Moody's rating for Hong Kong was deficient of any objective evidence as there were a substantial improvement for exports and growth in 2017. Oversupply of coal and steel have also come down. Chan, in response to the “contagion channels” factor as expressed by Moody's, said that the financial system of the area is extremely stable. It has a number of policies for improving management of risks for the mainland linked loans. He also wrote that the outlook cut by Moody's in 2016v have proved to be an exaggeration.
The Financial Secretary countered the downgrade writing that the evidence on which the ratings company downgraded the debt rating taking into equation the close relationship enjoyed between the Chinese Mainland and Hong Kong can only be construed as shallow. He further said that increased cooperation between Beijing could not be regarded as negative as China is considered by many as principal global economic growth engine.
To justify this action, Moody's said in its statement that Chinese credit trends will continue to deeply influence the credit profile of Hong Kong due to constructing political, economic and financial linkages with Beijing. It said that more closer ties risks in introduction of direct contagion channels between the financial markets of Hong Kong and China.
The Government of Hong Kong supported Chan's view. In a statement published by the official website, it spelled out that it disagreed with Moody's view. The Special Administrative Region, through its website, said that the ratings concern glossed over excellent economic fundamentals, resilient banking sector, robust fiscal position and a better financial regulatory regime.