Moody's Investors Service followed its downgrade of China's sovereign rating Wednesday with a downgrade of Hong Kong, reflecting its view that credit trends in China will continue to affect Hong Kong given their close economic, financial and political ties. Moody's lowered Hong Kong's rating to Aa2 from Aa1. The rating now stands at the third-highest level of investment grade, above China's rating of A1, which is the sixth-highest level of investment grade. "The economic and financial linkages between Hong Kong and China are close and broad-based," said the ratings agency. "Combined with political linkages, this means that any erosion in China's credit profile, such as that reflected in the 24 May downgrade of China's rating to A1 with a stable outlook, will ultimately affect Hong Kong's credit profile and will be reflected in the Special Administrative Region's (SAR) rating." China accounts for more than half of Hong Kong's exports of goods, three quarters of tourist arrivals and 40% of exports of services in general, said Moody's. As a very open economy, Hong Kong is exposed to global trade, bringing it even closer to China as it increases its share of world GDP and global trade, it said.
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