Moody’s on Tuesday lowered its outlook on the Chinese government’s credit rating from stable to negative, citing a slowdown in economic growth in the medium term and a continued contraction in the real estate sector.
Moody’s affirmed China’s long-term ratings of domestic and foreign currency issues at (A1), and said it expects the country’s annual GDP growth to reach 4.0 percent in 2024 and 2025.
Moody’s said in a statement that the change to the negative outlook reflects growing evidence that authorities will have to provide financial support to highly indebted local governments and state enterprises, posing broad risks to China’s financial, economic and institutional strength.
Moody’s said: “The change in expectations also reflects the increasing risks associated with persistent and structurally low economic growth over the medium term as well as the continued contraction in the size of the real estate sector.”
The world’s second-largest economy is struggling to mount a strong post-Covid-19 recovery this year, as a deepening real estate market crisis, local government debt risks, slowing global growth and geopolitical tensions dampen momentum. A series of policy support measures have only modestly proven their effectiveness, increasing pressure on the authorities to introduce further stimulus.
Commenting on Moody’s decision, the Chinese Ministry of Finance said that it was disappointed by Moody’s downgrading of the credit rating, adding that the economy would maintain its recovery in a positive direction. She also said real estate and local government risks are manageable.
While the Chinese economy is seen as being on track to meet the government’s annual growth target of about 5 percent this year, Moody’s expects China’s annual economic growth to slow to an average of 3.8 percent from 2026 to 2030.
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