The ability of unforeseen events to derail a smooth transition from economic to political progress highlights the importance of institutions and political development. Rapid economic growth has provided the Communist Party with political capital and rescued its legitimacy after the disastrous Cultural Revolution. Nevertheless, growing corruption, social and economic dislocation, and attempts to suppress political and religious dissent could deplete this capital. Failure to modernize the country's institutions and its political system could undermine stability once again. The stable outlook on the rating is based on the expectation of gradual political and institutional development to sustain economic progress and to match the growing wealth and education of China's population.
Institutional weakness is more pronounced in China than in most investment-grade countries.
The country's future credit rating depends on its ability to strengthen its weak laws and institutions. A credit rating assesses the ability to repay debt fully and on time. It is not a value judgment on different political systems. Most highly rated sovereigns, but not all, are democracies enjoying strong and stable political institutions based on the consent of the governed. The political constraint on China's rating reflects the importance of institutional development for managing a more complex economy through increasingly indirect, less personal means.