Moody’s cuts China’s credit outlook to negative

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Rating agency Moody’s Investors Service cut its outlook on China’s sovereign credit rating to negative on Tuesday, citing growing risks of persistently lower midterm economic growth and the overhang from a crisis in the property sector.

Moody’s said there was rising evidence that the government and state companies would provide financial support to weak regions, “posing broad downside risks to China’s fiscal, economic and institutional strength”.

The agency’s cut in outlook came as China struggles to address multiple economic challenges this year, with Beijing under pressure to tackle a slowdown in the country’s cash-strapped property sector, a debt crisis in weaker provinces and a slowdown in the broader economy.

Investors are also keen to know China’s target for gross domestic product growth next year, with policymakers expected to discuss this at an annual central economic work conference this month.

Also up for discussion will be fiscal support for the economy in 2024.

Moody’s affirmed its A1 rating for the country. It downgraded China’s credit rating from Aa3 to A1 in 2017, citing concerns that efforts to support growth would spur rising debt in the economy.

Immediately after Moody’s statement, China’s finance ministry said it was “disappointed about the decision”.

“China’s macroeconomy continues to recover and high-quality development is steadily advancing,” the ministry said. “It is unnecessary for Moody’s to worry about China’s economic growth prospects and fiscal sustainability.”

The ministry also said China’s “long-term positive fundamentals have not changed, and it will remain an important engine for global economic growth in the future”.

The impact of the property sector slowdown on local and central government fund budgets was “controllable and structural”, it said.

Moody’s expects China’s GDP growth to be 4 per cent in 2024 and 2025. The finance ministry said it expected the country’s economic growth to reach 5 per cent in 2023.

China’s benchmark Shanghai Composite index lost 1.67 per cent on Tuesday, with the index trading below the psychologically important level of 3,000 points.