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China Downgrade May Build a Mountain of Debt

Moody's move may mean Chinese companies borrow more from domestic banks.

The downgrade of China’s debt by Moody’s Investors Service may push Chinese companies to borrow even more money from domestic banks as overseas debt becomes more expensive, increasing risks for the nation’s finance industry.

With growing indebtedness at home, compounded by a slowing economy, there’s a risk of a “negative feedback loop,” said Khoon Goh, head of Asia research for Australia & New Zealand Banking Group, who sees state-owned enterprises and property developers feeling the biggest impact. The downgrade will particularly hurt airlines and shipping companies, said Corrine Png, CEO of Crucial Perspective in Singapore.

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