Irritation with Moody's reflects China's sensitivity as it seeks foreign investors

China has tried to brush aside a rare cut to its credit rating by Moody's Investors Service as misinformed, but its reaction highlights its sensitivity to how it is being viewed just as it seeks more foreign capital in its equity and bond markets. 

The downgrade offered no new revelations on China's debt problems but effectively challenged Beijing's economic outlook and raised questions about the impact of its highly-touted reforms, adding to concerns for foreign investors, analysts say.

State media did not report Moody's decision on Wednesday to downgrade China's sovereign rating until the finance ministry issued a statement hours later saying the rating agency's analysis overestimated risks and was based on "inappropriate methodology".

The demotion by one notch to A1 was Moody's first for China in nearly 30 years, and agency officials said on Friday that another cut is possible down the road unless the country gets its ballooning credit in check.

As China pushes for inclusion in one of MSCI Inc's major global stock indices at a review next month and plans to open its bond market further to foreign investors this year, outside assessments and calls for transparency will only increase.

And if Moody's and Beijing view the same debt differently, it may partly reflect difficulties that outsiders face in getting access to information needed to assess China's risks.

China's Ministry of Finance and the People's Bank of China did not immediately respond to faxed requests for comment.

Just this month the Financial Stability Board (FSB), the financial risk monitoring agency of the Group of 20 (G20) economies, criticized Beijing for not providing key financial data, leading to the delay in a report on the financial risks the world faces from shadow banking.