The Hong Kong Special Administrative Region government has every reason to dispute the Moody’s “assessment” of Hong Kong’s situation after the agency downgraded the city’s credit rating by one notch to Aa3 from Aa2. But it also has every reason to take it lightly.

Moody’s has a poor record in its “assessments” of Hong Kong. The agency downgraded Hong Kong in 1995 when “fears” about the city’s future that would follow its return to China were at their peak. But the scenario Moody’s fretted about at the time never happened. Hong Kong may not be the same as people knew it at that time. It certainly has become better.

Over the past two decades, the city has fared well in terms of both economic and social development. The city’s economy has remained robust except for a few hiccups, ranking among the strongest economies in per capita GDP. It has maintained enviable public fiscal strength, as evidenced by its huge fiscal reserve, which is comparable to those of many major sovereign countries.

In terms of social development, Hong Kong ranked third among 162 jurisdictions in the 2019 Human Freedom Index, the most comprehensive freedom index compiled by the Canadian think tank the Fraser Institute and other international think tanks, based on 79 indicators for personal, civil and economic freedoms. The city is placed fourth along with Germany out of 189 jurisdictions on the 2019 Human Development Index, compiled by the United Nations Development Program, which measures achievement in three basic dimensions of human development — life expectancy, education and per capita income.

A credit rating, which measures a jurisdiction’s financial capability to honor its debt, is inarguably underpinned by its fiscal strength. Moody’s confounded many when it downgraded Hong Kong’s credit rating while at the same time noting the city’s “large fiscal reserves”, “minimal debt burden” and “ample foreign exchange reserves”. It contradicted its own rating action by saying that these attributes — Hong Kong’s “superior fiscal strength and consistent macroeconomic stability” — are expected to persist through a period of heightened uncertainty associated with weak or negative GDP growth.

“The downgrade principally reflects Moody’s view that Hong Kong’s institutions and governance strength is lower than previously estimated,” Marie Diron, managing director of Moody’s sovereign risk group, and Martin Petch, vice-president and senior credit officer of sovereign risk group, explained in a statement.

They were telling the market that Moody’s made rating actions based on subjective “views” rather than concrete figures and scientific calculations.

In other words, rating actions are subject to personal views. Moody’s confirmed this by warning that “closer institutional integration” between Hong Kong and the Chinese mainland could contribute to further downgrades in the future. This has cast doubt on the rating agency’s own credibility.