Standard & Poor’s upgraded its long-term foreign and local currency sovereign credit ratings on the People’s Republic of China to ‘AA-’ (its fourth-highest ranking) from ‘A+’.

The outlook on China’s long-term ratings is stable.

S&P explained that the stable outlook reflected its view of China’s strong capacity to absorb potential balance sheet losses, given its substantial foreign reserves and strong fiscal position

The ratings agency also applauded the country’s “exceptional growth prospects” and noted China’s strengths offset the potential for “sizable” contingent liabilities in the banking system if there were an extended economic slowdown.

China is the globe’s fastest-growing major economy and boasts $2.65-trillion in currency reserves, the world’s largest.

S&P also noted that the government deficit in China will probably fall over the next three years from 3 percent of GDP as fiscal stimulus is gradually scaled back.

GDP growth could average about 8 percent annually, S&P indicated.

We may raise the ratings again if structural reforms lead to sustained economic growth that significantly lifts the average income level, S&P said.

Conversely, we may lower the ratings if reform efforts weaken, in combination with a markedly weaker economic performance and worsening banking sector credit metrics than what we currently expect.

Moody’s raised its debt rating for China in mid-November,