Moody's downgrades China's government credit rating outlook to negative

Global ratings agency Moody’s has downgraded its outlook on China’s government credit ratings from stable to negative. This decision is attributed to lower medium-term economic growth and the continued downsizing of the property sector.

Moody’s, while affirming China’s A1 long-term local and foreign-currency issuer ratings, anticipates the country’s annual GDP growth to be 4.0% in both 2024 and 2025. The shift to a negative outlook is a response for debt-laden local governments and state-owned enterprises, posing extensive risks to China’s fiscal, economic, and institutional strength, according to a statement by Moody’s.

Moody's stated that the change in outlook also indicates heightened risks associated with structurally and persistently lower medium-term economic growth, along with the continuous downsizing of the property sector.

China, as the world’s second-largest economy, has faced challenges in achieving a robust post-COVID recovery in 2023. Issues such as a deepening crisis in the housing market, local government debt risks, slow global growth, and geopolitical tensions have hampered momentum. Despite a series of policy support measures, their impact has been modest, increasing pressure on authorities to introduce additional stimulus.

Responding to the downgrade, China’s Finance Ministry expressed disappointment, asserting that the economy will maintain its rebound and positive trend. The ministry emphasized that the risks associated with the property sector and local governments are manageable.

While the Chinese economy is expected to meet the government’s annual growth target of approximately 5% in 2023, Moody’s foresees a slowdown in annual economic growth to an average of 3.8% from 2026 to 2030. The downgrade underscores the challenges facing China’s economic landscape, prompting scrutiny from both domestic and international stakeholders.