China has become one of the world’s leading economies, mostly through its vast trade and manufacturing network. China holds more US debt than any other country. For the first time in years, Moody’s has downgraded China’s credit rating. Even though China owns a large share of the US debt, they have been incurring quite a bit of debt on their own, which is why they were downgraded.
There’s really only one thing to wonder about now that Moody’s has downgraded China’s credit rating, and that’s what it means for Janet Yellen and the Federal Reserve.
First, a refresher in case this is how you’re getting the news. For the first time since 1989, Moody’s — a debt ratings agency — downgraded China’s credit rating from A1 from Aa3. Global stocks initially fell on the news but later recovered within the trading day.
That’s because the reasons that Moody’s cited for the downgrade have been largely known for years. The agency said that China’s mounting debt has become a concern…
Some world stocks have reacted, but it hasn’t seemed to have the impact that some believed it would. The downgrading means that it will cost China more to borrow money and make it harder for them to make their economic goals without some serious bank reforms. In the world of economics, you could say that China is stuck between a rock and hard place as they try to figure out what to do next.