Moody's on Wednesday slashed China's credit rating for the first time in almost three decades citing concerns about the country's rising debt and slowing growth, but Beijing rejected the downgrade as "inappropriate".

The move comes as China tries to clean up a toxic brew of unregulated and risky lending that for years has fuelled the economy's spectacular growth, though some analysts doubt Beijing's willingness to quit its debt addiction.

"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," the agency said.

China's total outstanding credit surged to 260 percent of gross domestic product (GDP) by the end of 2016 and the International Monetary Fund has warned that a debt crisis in the country could "imperil global financial stability".

The government has trimmed its 2017 growth target to around 6.5 percent after it expanded 6.7 percent in 2016, the slowest growth rate since 1990.

China's 13th Five-Year-Plan released in 2016 announced an average annual growth rate of above 6.5 percent for 2016-2020.

But Moody's said it expects China's growth potential to decline to close to five percent over the next five years, citing diminishing investment, an accelerated fall in the working age population and a continuing dip in productivity.

- 'Cold water' -

The finance ministry rejected the assessment, saying Moody's had used an "inappropriate" method to assess the risks facing the economy.

"It over-estimated the difficulties that the Chinese economy is facing," the ministry said in a statement.

It added that the government's debt ratio in 2016 was 36.7 percent, lower than major market economies, and that the "expansion of the scale of government debt has been effectively controlled".

"The downgrade will certainly affect China negatively," Liao Qun, Hong Kong-based chief economist of Citic Bank International, told AFP.

"The direct impact is that this would make China's debt financing more difficult and the financing cost would also rise. "This is like throwing cold water when everyone is optimistic about China's economy."

But Liao said the move "makes no sense" because China's growth has improved from last year and the threat of trade protectionism from US President Donald Trump's administration has subsided.

Moody's cut the long-term local currency and foreign currency issuer ratings to A1 from Aa3, the first reduction since late 1989 as it assessed the impact of the Tiananmen Square crackdown on China's trade with the world.

However, Moody's upgraded its outlook to stable from negative, where it had been since March 2016.

"The stable outlook reflects our assessment that, at the A1 rating level, risks are balanced," it said in its ratings note.

"The erosion in China's credit profile will be gradual and, we expect, eventually contained as reforms deepen," Moody's said.

- Crisis fears -

"The strengths of its credit profile will allow the sovereign to remain resilient to negative shocks, with GDP growth likely to stay strong compared to other sovereigns, still considerable scope for policy to adapt to support the economy, and a largely closed capital account."

Fears are mounting that China is flirting with a potential disaster worse than the US sub-prime collapse that sparked the global financial crisis, and Japan's 1990s asset-bubble meltdown and resulting "lost decade".

China's banking regulator recently unveiled measures to rein in dangerous lending, tighten balance sheets and strengthen institutional transparency and chronically weak internal controls.

Moody's had estimated in October that China's "shadow banking" sector -- off-balance-sheet lending that evades official risk supervision -- totalled $8.5 trillion, or nearly 80 percent of GDP.

But analysts have expressed scepticism about whether Beijing will back up its talk with real action since freewheeling credit conditions have underpinned the growth China's Communist Party relies on for political legitimacy.

"It is not going to come as any great news to the world that China has problems with a huge credit boom that, in the end, is probably going to require government intervention to bear some of the costs," Richard Jerram, chief economist at Bank of Singapore, told Bloomberg News.

Shanghai and Hong Kong stocks fell son after the downgrade was announced but rebounded in the afternoon to end slightly higher.

Chinese tech firm LeEco reverses course in US, cuts 325 jobs
San Francisco (AFP) May 24, 2017 - Cash-strapped Chinese tech firm LeEco on Wednesday confirmed that it is throttling back plans to invade the US market, cutting 325 jobs months after announcing a major expansion.

The layoffs were reported represent about 70 percent of the company's US staff.

"The challenges with raising new capital have made it difficult in the past few months to support all of our business priorities," LeEco spokeswoman Kayla Harper said in an email..

"As a result, the capital we do have will have to be highly focused resulting in a significant restructuring and streamlining of our business, operations and workforce."

The belt tightening will effect approximately 325 positions in the US, according to Harper.

LeEco -- referred to as a combination of Netflix, Apple, Amazon and Tesla -- dove into the US market late last year with a grand event in San Francisco and laid out a vision of taking on US tech titans on their home turf.

LeEco jumped into a fiercely competitive US smartphone market with sophisticated handsets priced lower than flagship models from rivals to bring users to its "ecosystem" of online offerings.

Analysts, however, expected it to take more than bargains on handsets to win people away from what Apple and Google provide when it comes to meshing mobile devices with digital content, applications and services.

- Chinese focus -

LeEco continues to have faith in its approach and will remain in the US market, but playing to its strength with content tailored for Chinese-speaking customers, according to Harper.

"In the past few months, we have gained a large foothold in Chinese-speaking households in the US by offering tailor-made products and content for this community," Harper said.

"We believe this provides us an opportunity to build on our strengths and grow from there."

LeEco last month abandoned its effort to buy US television maker Vizio, citing "regulatory headwinds."

LeEco last year announced a deal to buy Vizio for $2 billion, but the acquisition had to be approved by regulators.

LeEco said that Vizio will look into ways to incorporate the Chinese company's app and content into offerings.

Early this year, LeEco secured a $2.2 billion investment from a group led by property developer Sunac China Holdings, after it had to suspend trading in shares.

The money was to be ploughed into the sprawling LeEco empire, which has interests in various sectors including self-driving cars, smartphones, film making, and TV-set manufacturing.

Originally a video-streaming provider, LeEco has expanded rapidly with investments in sectors as wide-ranging as self-driving cars, sports broadcasting rights, smartphones, film production, and television manufacturing.

LeEco's diverse ventures pit the company against Apple, Netflix, and Tesla and homegrown Chinese champions Baidu, Tencent, and Alibaba.

But the company's relentless expansion has put a strain on its cash flow, and in November told employees the company grew too quickly and was short of funds.

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China investigates senior banking regulator
Beijing (AFP) May 23, 2017
China is investigating a senior banking regulator, the anti-corruption watchdog said Tuesday, as the government steps up a crackdown on the financial sector. Yang Jiacai, assistant chairman of the China Banking Regulatory Commission, is "suspected of a severe disciplinary violation", the Central Commission for Discipline Inspection said in a statement announcing the probe. The phrase ... read more

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