Rating agency Moody’s Investors Service cut its outlook on China’s sovereign credit rating to negative on Tuesday, citing growing risks of persistently lower midterm economic growth and the overhang from a crisis in the property
Revenues for local governments, which relied heavily on selling land, have collapsed because of the crisis in the property sector and many are still dealing with the consequences of extra spending during the pandemic.
![China faces a property sector slowdown, a debt crisis in weaker provinces and a slowdown in the broader economy. Photo / 123RF](https://www.nzherald.co.nz/resizer/v2/ZJKVDZ7RVJHJ3OZKY6NHNXABQU.jpg?auth=682c0481415263d67fa71175731a2aea8393099b28793c3bdebd710e2bd65de0&width=16&height=11&quality=70&smart=true)
Moody’s affirmed its A1 long-term local and foreign-currency issuer rating for the country. It downgraded China’s credit rating from Aa3 to A1 in 2017, citing concerns that efforts to support growth would spur rising debt in the economy.
Immediately after Moody’s statement, China’s finance ministry said it was “disappointed about the decision”.
“China’s macroeconomy continues to recover and high-quality development is steadily advancing,” the ministry said. “It is unnecessary for Moody’s to worry about China’s economic growth prospects and fiscal sustainability.”
The ministry also said China’s “long-term positive fundamentals have not changed, and it will remain an important engine for global economic growth in the future”.
Property sector slowdown
The impact of the property sector slowdown on local and central government fund budgets was “controllable and structural”, it added.
Moody’s expects China’s GDP growth to be 4 per cent in 2024 and 2025. The finance ministry said it expected the country’s economic growth to reach 5 per cent in 2023.
China’s benchmark Shanghai Composite index lost 1.67 per cent on Tuesday, trading below the psychologically important level of 3,000 points. Its blue-chip index CSI 300 declined 1.9 per cent, sending it to the lowest level since February 2019.
Blue-chip shares have fallen 12 per cent from a peak in January, following disappointing economic data that dashed hopes of a strong post-pandemic recovery.
In November China’s manufacturing activity contracted for the second month, leaving its economic momentum in question despite a slew of supportive measures from Beijing to boost sentiment and growth since mid-2023.
The OECD said last week that “structural stresses” in China were a downside risk to global growth. It forecast the country’s growth would slow to 4.7 per cent in 2024 from 5.2 per cent this year, citing slow consumption growth and weakening activity in the property sector.
Written by: Cheng Leng in Hong Kong
© Financial Times