Ratings agency Moody’s on Tuesday 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, with Beijing saying it was “disappointed” by the move.
The change “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”, the US agency said in a note.
This, it said, was “posing broad downside risks to China’s fiscal, economic and institutional strength”.
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 — which accounts for about a quarter of gross domestic product — is mired in a deep debt crisis, with some of the nation’s biggest developers owing hundreds of billions of dollars and facing going out of business.
Beijing’s finance ministry said in response it was “disappointed with Moody’s decision”.
“Since the beginning of this year, facing a complex and severe international situation and against the backdrop of unstable global economic recovery and weakening momentum, China’s macro economy has continued to recover,” a spokesperson said.
China’s recovery has been hampered by weak consumer and business confidence, the persistent housing crisis, record youth unemployment and a global slowdown which is weighing on demand for Chinese goods.
After a tough year for the world’s number-two economy, there have been flickers of life in recent weeks, with third-quarter growth coming in more than expected at 4.9 percent.
