And this is why credit ratings matter. Because for people to buy the bonds the credit rating needs to be high to keep the yield (interest) low.
If a country receives a less-than-stellar credit rating, the only way they can entice people to buy their bonds is by offering higher yield (interest rate) which means they have to pay back more.
In July 2012 the credit rating for many Euro countries was low and the borrowing costs very high.
Mario Draghi, the President of the Central European Bank (who can emit so many Euros as they wish with typing something in a computer) made a statement (1) that he will defend the Euro.
The next day the debt problem was solved.
'The markets' know that governments that emit debt in their own currency, are not depending of ratings or people buying bonds because they control the currency.
The European case is complicated because the Euro is kind of a foreign currency for the Euroarea, but the China case is obvious.
And this is why credit ratings matter. Because for people to buy the bonds the credit rating needs to be high to keep the yield (interest) low.
If a country receives a less-than-stellar credit rating, the only way they can entice people to buy their bonds is by offering higher yield (interest rate) which means they have to pay back more.