“Moody’s Cuts China’s Government Credit Rating Outlook to Negative Amid Concerns Over Debt and Property Crisis”
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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 Ratings, Signaling Concerns Over Local Debt and Property Crisis
On December 5, ratings agency Moody’s made the decision to cut its outlook on China’s government credit ratings from stable to negative. This move comes as global concerns continue to mount regarding the impact of surging local government debt and a deepening property crisis on the world’s second-largest economy.
According to Moody’s, the downgrade reflects the risks associated with China’s persistently lower medium-term economic growth and the ongoing downsizing of the property sector. The agency 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.
In response to the downgrade, China’s finance ministry expressed disappointment and deemed Moody’s concerns unnecessary. However, experts believe that the market has already reacted to China’s situation and that the move by Moody’s is somewhat behind the curve.
Chris Scicluna, Head of Research Division at Daiwa Capital Markets in London, commented that China is reluctant to provide stimulus and will only do so if there is no recovery. He also noted that the Chinese authorities are unlikely to respond to a foreign ratings agency’s actions.
Victoria Scholar, Head of Investment at Interactive Investor in Leeds, UK, highlighted China’s struggle with a bumpy post-COVID recovery. The country has been grappling with weak demand, an embattled property sector, declining imports and exports, and heavy debts from long-term infrastructure spending. Scholar emphasized that while the government has implemented stimulus measures to bolster demand, more needs to be done to support the second-largest economy in the world, especially given the backdrop of sluggish global demand.
China’s economic challenges have been further exacerbated by the impact of the COVID-19 pandemic. The government has even stopped publishing youth unemployment figures after they reached a record high during the summer.
The downgrade by Moody’s serves as a cautionary signal for China to address its economic issues more aggressively. It highlights the urgent need to tackle the local government debt problem and stabilize the property sector, which plays a crucial role in the country’s economy.
As China continues to grapple with these challenges, the global financial community will closely monitor the government’s response and the effectiveness of its measures. With the world economy already reeling from the effects of the pandemic, the stability of China’s economy remains key to the overall global economic recovery..
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