Moody’s downgrades China’s credit outlook to negative due to financial strain on local governments and state-owned enterprises, leading to potential risks for economic growth and financial stability in the future.
Moody’s Downgrades China’s Credit Outlook to Negative
Financially challenged local governments and state-owned enterprises are becoming a significant risk to China’s future economic growth. This led the ratings agency Moody’s to downgrade the country’s credit outlook from stable to negative. There is increasing evidence to suggest that the central government will have to address the debt-laden entities, creating broader downside risks to China’s fiscal, economic, and institutional strength.
Moody’s Maintains Overall Credit Rating of A1
The local governments in China are suspected to have accumulated trillions of dollars in debt due to expenditure during the COVID pandemic and a loss of income from a troubled real estate market. Despite these challenges, Moody’s maintained China’s overall credit rating of A1, classifying it as low-risk but not the safest category of investment. Moody’s cited the country’s vast economy and robust, albeit slowing, potential growth rate as factors that support its high shock absorption capacity.
Concerns and Responses to China’s Future Creditworthiness
The downgrade in China’s credit outlook emphasizes concerns about the country’s future creditworthiness. However, China’s Foreign Ministry expressed disappointment in the ratings change and stated that efforts to prevent and resolve the risks of local government debt have been successful. Moody’s projects a growth rate of 4% in 2024 and 2025, which is expected to average 3.8% from 2026 to 2030, further decreasing to 3.5% after that.
Source : Evaluating Deals, Values, M&A, and Investments – Thailand China Business News