Standard & Poor is the second credit ratings agency to downgrade its current and future outlook on China.
Standard & Poor’s said Thursday that Beijing will make slower-than-expected progress in regards to its credit growth controls and economic reforms.
“The negative outlook reflects our view of gradually increasing economic and financial risks to the government’s creditworthiness,” S&P said in a report.
While the credit reporting agency has downgraded its outlook in China, it has continued to maintain the countries AA- credit rating.
Standards & Poor downgraded its outlook after a similar move by Moody’s, which pointed to worries about the government’s potential debt burden and large amount of money flowing out of the country into international investments.
The Chinese government is encouraging banks in the country to continue offering more loans to offset slowing growth in the country.
Officials at the S&P say cheap credit flooding China’s markets will help boost GDP in the short-term but ultimately lead to increased debt in the long term.
“A downgrade could ensue if we see a higher likelihood that China will seek to stabilize growth at or above 6.5% by increasing credit at a significantly faster rate,” it said.
If conditions don’t improve in China in the short-term, the S&P will likely downgrade the countries rating in 2016 or early 2017.