BEIJING - Standard & Poor's (S&P) mass downgrade of the credit ratings of nine eurozone countries could damage China's growth by further bringing down its exports - and pose a challenge to the country's forex reserve management, experts said on Saturday.

The US-based agency cut the ratings of Italy, Spain, Portugal and Cyprus by two notches and the standings of France, Austria, Malta, Slovakia and Slovenia by one notch each.

France and Austria were stripped of their triple-A status. And highly indebted Italy was put on the same BBB+ level as Kazakhstan, while Portugal's rating was pushed into junk status.

Germany is now the only country to emerge totally unscathed with its triple-A rating and a stable outlook in the troubled single-currency area. The other 14 eurozone states, including France, Austria and still triple-A rated Finland, the Netherlands and Luxembourg, were put on the list of negative outlook for a possible further downgrade.

"Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone," S&P said in a statement.

Yuan Gangming, a senior researcher with the Center for China in the World Economy at Tsinghua University, told China Daily that S&P's downgrades on such a large scale could overshadow the global economy and trigger another global financial crisis.

"The eurozone could fall apart earlier than we expected, maybe within this year," Yuan said.

The impact of S&P's downgrade on these nine countries is "limited" in terms of China's financial outlook, but the deepening crisis in Europe, China's largest trade partner, could further weaken the country's exports and therefore hinder its economic growth, Yuan said.

China's export growth saw a fourth consecutive monthly decrease, to 13.8 percent in November 2011. Yuan said the figure is not likely to rebound to above 15 percent through the end of 2012.

"Export is still the main driver of the China economic engine. As a result, chances are China's GDP growth may drop to below 8 percent in 2012," he said.

In response to a weakening European market, China should attach more importance to its trade partnership with emerging economies such as the Mideast and the BRICS countries where there is robust growth and complementary resources.

Meanwhile, the possible depreciation of euro assets brought by the downgrades sounds an alarm to China's foreign exchange reserve management, said Song Xinning, director of the Centre for European Studies at Renmin University of China.

Euro assets come after the US dollar as the second largest component in China's $3.2 trillion foreign exchange reserve basket. Song said, the proportion is between 20 to 25 percent, or about $800 billion.

The euro fell by more than a cent to $1.265 on the news. European stocks, which had been up on the day, turned negative but reaction to the widely anticipated news was moderate.

Song said there was no reason to expect China to reduce its holdings of euro assets, as he is still confident in the overall stability in the European region.

"The move of the rating agency was based on a political reason for the benefit of hedge funds, but the European mode is still sustainable because, despite the poor governments, the people are still wealthy," he said.

Reuters contributed to this story.

China Daily

(China Daily 01/15/2012 page2)