Ratings agency Moody’s yesterday downgraded the outlook on China’s credit rating to “negative” from “stable” on the back of rising debt in the world’s second-largest economy.
China’s post-COVID-19 pandemic recovery has been hampered by weak consumer and business confidence, a persistent housing crisis, record youth unemployment and a global slowdown that is weighing on demand for the country’s goods.
Those woes have piled pressure on central and local governments to step in with more financial support following a 1 trillion yuan (US$141.1 billion) sovereign bond issuance by Beijing in October.
Photo: EPA-EFE
Moody’s said its decision “reflects rising evidence that financial support will be provided by the government and wider public sector to financially stressed regional and local governments and state-owned enterprises.”
This was “posing broad downside risks to China’s fiscal, economic and institutional strength,” it said.
The move “reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector,” it added.
China’s vast property sector is mired in a deep debt crisis, with some of the nation’s biggest developers owing hundreds of billions of dollars and facing bankruptcy.
Construction and real estate account for about a quarter of China’s GDP.
Moody’s said it expected the economy to grow 4 percent next year and in 2025, “with structural factors including weaker demographics driving a decline in potential growth to around 3.5 percent by 2030.”
“Substantial and coordinated reforms will be needed for consumption and higher value-added production to drive growth” to offset the diminished role of the property sector, it added.
The Chinese Ministry of Finance said it was “disappointed with Moody’s decision.”
“Moody’s concerns about China’s economic growth prospects and fiscal sustainability are unnecessary,” a ministry spokesperson said, adding that China’s macroeconomy has continued to recover.
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