Moody's Cuts China's Credit Outlook To Negative Citing Growth Slowdown Risk

Ratings agency Moody’s on Tuesday cut its outlook on China’s government credit ratings to negative from stable, on the back of lower medium-term economic growth and rising debt in the world’s second-largest economy.

Moody’s affirmed China’s A1 long-term local and foreign-currency issuer ratings and said it expects the country’s annual GDP growth to be 4% in 2024 and 2025 and average 3.8% from 2026 to 2030.

Moody’s expects China property sector to remain smaller in proportion to entire economy than it was before property correciton that started in 2021.

“Outlook change reflects increased risks in China related to structurally, persistently lower medium-term economic growth,” said Moody’s.

China’s Finance Ministry said it is ‘disappointed’ by Moody’s downgrade of ratings outlook and added that the country’s economy “will maintain its rebound and positive trend”.

“Moody’s concerns about China’s economic growth prospects, fiscal sustainability and other aspects are unnecessary. The impact of the downturn in the real estate market on local general public budgets and government budgets is controllable and structural,” said the ministry.

The world’s second-biggest economy has struggled to mount a strong post-COVID recovery this year as a deepening crisis in the housing market, local government debt risks, slow global growth and geopolitical tensions have dented momentum. A flurry of policy support measures have proven only modestly beneficial, raising pressure on authorities to roll out more stimulus.

According to a Reuters report, China’s Finance Ministry said it was disappointed by Moody’s downgrade, adding that the economy will maintain its rebound and positive trend. It also said property and local government risks are controllable.

“Moody’s concerns about China’s economic growth prospects, fiscal sustainability and other aspects are unnecessary,” the ministry said.

The world’s second-largest economy has been grappling with issues like the housing market crisis and local government debt risks amid slower global and domestic economic growth. Chinese government had earlier announced a slew of policy stimulus, but the benefits of those were limited.

Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China’s economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund (IMF).