Moody's also raised the mainland's rating outlook to positive because of Beijing's resilient, robust and relatively stable macroeconomic performance during the turbulence of the past year.

Steven Hess, Moody's lead analyst for Hong Kong, said the city's rating is marginally lower than its intrinsic credit strength owing to its status as a special administrative region and the increasing financial and economic integration with China. "The residual China effect constrains Hong Kong's intrinsic upward rating potential," Hess said. "However, China's outlook change indicates that the level of hypothetical risk emanating from China has lessened which contributes to a positive rating outlook for Hong Kong."

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The ratings agency assesses the SAR's government financial strength as very high due to its low debt level and large fiscal reserves. Hong Kong's high per capita income, institutional strength, separate currency, international reserves and different legal system justify a rating higher than that of China, Moody's said.

Moody's raised China's A1 rating outlook to positive from stable, taking the view that its strong credit fundamentals will likely resume an improving trend as its economy emerges from the effects of the global recession.

"The country's very strong international investment position has insulated it from the global financial crisis and reduced to a negligible level the risk that China could face a future balance of payments crisis," said Tom Byrne, a Moody's senior vice president.

The ratings agency said that China's economic recovery seems well established, underlying risks will be monitored, and further positive rating actions over the outlook horizon period of 12 to 18 months will hinge on continued stability and state economic stimulus programs.

Moody's last rating action on Hong Kong was in July 2007, when the government bond rating was upgraded to Aa2 from Aa3. At that same time it raised China's rating to A1 from A2.