Standard and Poor's has expressed increased confidence in China's fiscal reforms by raising its credit rating, and Japan's largest paper company is set for a rare hostile takeover.

The credit-rating agency Standard and Poor's has raised China's long-term sovereign credit rating to A from A minus, because of the strengthening of the banking sector, economic reforms, and strong economic growth.

The agency says the change also allowed it to boost the Hong Kong government's long-term credit rating to AA from AA minus.

Analyst Kim Eng Tan explains the reason for the change.

"The reason why Hong Kong hasn't been at the double A rating has been because China has a relatively lower rating, A minus, and this constrains Hong Kong's ratings, because, at the end of the day, Hong Kong is still a territory of China, and adverse events happening in China could spill over to Hong Kong and affect its credit fundamentals adversely," Tan says.

Standard & Poor's notes Hong Kong's effort to reduce the volatility of its tax revenue with a proposed goods and services tax, saying the discipline shown by the administration contributes to the territory's strong fundamentals. 

The AA (double A) rating was also granted to 10 companies and financial institutions in Hong Kong. Among them are a number of divisions of the Hong Kong and Shanghai Banking Corporation.

Higher credit ratings indicate a country, or a company, is able to pay its debts, and allows them to borrow at a lower cost. 

In a sharp break with traditional business practice, Japan's Oji Paper Company announced an unsolicited bid for a domestic rival this week. Oji offered Hokuetsu Paper Mills $7.41 a share for at least 50.1 percent of Hokuetsu's outstanding shares. The offer was about a third higher than the price Mitsubishi Corporation, a trading conglomerate, had said it would pay for a 24 percent stake in Hokuetsu.

Growth through unsolicited takeovers is rare in Japan. If Oji Paper's bid succeeds, the merger would create the world's fifth largest paper group.

In South Korea, the economy grew by 5.3 percent during the second quarter of the year, compared with the same period a year earlier. Although exports and consumer spending rose from April to June, the construction industry contracted. Compared with the first quarter of the year, gross domestic product rose less than one percent, the slowest rate in a year.

The slower growth comes after the South Korean central bank had raised interest rates to prevent inflation and to cool the property market, which had been heating up.