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Moody’s has downgraded China’s government credit ratings from stable to negative, citing concerns over the impact of rising local government debt and a deepening property crisis on the country’s economy. The ratings agency expects China’s annual GDP to average 3.8% between 2026 and 2030. China’s finance ministry expressed disappointment with the downgrade and called Moody’s concerns unnecessary. The country has been dealing with weak demand, an embattled property sector, declining imports and exports, and heavy debts from infrastructure spending.
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Dec 5 (Reuters) – Ratings agency Moody’s cut its outlook on China’s government credit ratings to negative from stable on Tuesday, in the latest sign of mounting global concern over the impact of surging local government debt and a deepening property crisis on the world’s second-largest economy.
COMMENTS:
CHRIS SCICLUNA, HEAD OF RESEARCH DIVISION, DAIWA CAPITAL MARKETS, LONDON:
“The market realises that China is reluctant to provide stimulus.
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“So, China is data dependent and will only provide stimulus if there is not a recovery.
“I wouldn’t expect the Chinese authorities to respond to a foreign ratings agency’s actions.
“In a way, the move is a lagged indicator in terms of how markets have already reacted to China and foreign investors have taken an arms length approach to the country
“So this is a little bit behind the curve.”
VICTORIA SCHOLAR, HEAD OF INVESTMENT, INTERACTIVE INVESTOR, LEEDS, UK (email)
“Moody’s has cut China’s government credit rating to negative from stable. The ratings agency says this reflects the risks related to its persistently lower medium-term economic growth and ongoing downsizing of the property sector. It expects China’s annual GDP to come in at 4% in 2024 and 2025 and average 3.8% between 2026 and 2030. China’s finance ministry said it is disappointed by the downgrade and said Moody’s concerns are unnecessary.”
“China has struggled with a bumpier than expected post covid recovery. It has been grappling with weak demand, an embattled property sector, declining imports and exports, and heavy debts from long-term infrastructure spending. The government has stopped publishing youth unemployment figures, after they hit a record high in the summer. While the authorities have been attempting to bolster demand through stimulus measures, more needs to be done to support the world’s second largest economy particularly amid the backdrop of sluggish global demand.” (Compiled by the Global Finance & Markets Breaking News team)
Moody’s Downgrades China’s Government Credit Rating
Moody’s, the renowned ratings agency, has recently downgraded its outlook on China’s government credit ratings from stable to negative. This downgrade reflects mounting global concern over the impact of surging local government debt and a deepening property crisis on the world’s second-largest economy.
According to Chris Scicluna, Head of Research Division at Daiwa Capital Markets in London, the market has recognized that China is reluctant to provide stimulus. He suggests that China is data dependent and will only provide stimulus if there is no recovery. Scicluna also believes that the Chinese authorities are unlikely to respond to a foreign ratings agency’s actions, as this move by Moody’s is somewhat behind the curve in terms of how markets have already reacted to China.
Victoria Scholar, Head of Investment at Interactive Investor in Leeds, UK, echoes Moody’s concerns. She states that the downgrade reflects the risks associated with China’s persistently lower medium-term economic growth and ongoing downsizing of the property sector. Moody’s predicts that China’s annual GDP will come in at 4% in 2024 and 2025, with an average of 3.8% between 2026 and 2030. However, China’s finance ministry expressed disappointment with the downgrade, dismissing Moody’s concerns as unnecessary.
China has been grappling with various challenges in its post-COVID recovery. Weak demand, an embattled property sector, declining imports and exports, and heavy debts from long-term infrastructure spending have all posed significant obstacles. The government has even stopped publishing youth unemployment figures after they reached a record high in the summer. While attempts have been made to stimulate demand, more needs to be done to support the world’s second-largest economy, especially amidst the backdrop of sluggish global demand.
In conclusion, Moody’s downgrade of China’s government credit ratings highlights the growing concerns regarding the country’s economic struggles. As China continues to grapple with various issues, further measures are required to bolster its recovery and support its position in the global market..
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