Moody's Threatens Potential Downgrade for China
Moody's downgrades China's government credit ratings to negative due to lower medium-term economic growth and ongoing downsizing of the property sector, raising concerns about the country's financial stability
Don't miss out on CNN's Meanwhile in China newsletter, uncovering the impact of the country's rise on the world. On Tuesday, Moodys revised China's government credit ratings outlook to negative from stable, pointing to risks in fiscal strength, lower economic growth in the medium-term, and ongoing troubles in the property sector.
The downgrade in its outlook is due to mounting evidence that the government will offer financial assistance to struggling local governments and state-owned enterprises, creating significant risks to China's fiscal, economic, and institutional stability, according to the rating agency. The change in outlook also indicates higher risks associated with long-term lower economic growth and the continued reduction of the property sector.
Moody's projects that China's yearly economic growth will hit 4% in 2024 and 2025, and will have an average of 3.8% annually from 2026 to 2030. Factors like declining demographics could lead to a potential growth decrease to approximately 3.5% by 2030, according to Moody's. It also confirmed China's A1 long-term local and foreign-currency issuer rating.
The Chinese Finance Ministry expressed disappointment on Tuesday with Moodys decision to downgrade the country's credit outlook. In a statement, the Ministry highlighted the shift to high-quality development in the Chinese economy, the effectiveness of new growth drivers, and the country's capacity to carry out reforms and address risks and challenges. It also deemed Moodys concerns about the growth prospects and fiscal sustainability of the country as unnecessary.
The government has implemented a series of measures to address the undisclosed debt risks of local governments. According to a statement, collaborative efforts among local departments have led to a gradual reduction in implicit debt and the mitigation of associated risks.
The impact of the real estate downturn on local governments budgets is "controllable," it added.
This is a developing story and will be updated.
