On Tuesday, Moody’s lowered its expectations for China’s credit rating from stable to negative, against the backdrop of the debts of the second largest economy in the world, while China expressed its disappointment with the decision.
The agency pointed out in a statement the slowdown in economic growth in China in the medium term and the risks resulting from the decline of the country’s large real estate sector.
Moody’s said that this downgrade reflects growing evidence that Chinese authorities will need to provide financial support to highly indebted local governments and state-owned enterprises, which poses widespread risks to China’s financial, economic and institutional strength.
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 slow to 4% in 2024 and 2025, and to an average of 3.8% in the period from 2026 to 2030.
China responds
For its part, the Chinese Ministry of Finance expressed its “disappointment” regarding this decision, and stressed in a statement that Beijing “has the ability to confront risks and challenges.”
A ministry official considered concerns Moody’s on China’s growth prospects and financial sustainability”There is no justification,” according to what was reported by the Chinese Xinhua Agency.
The official said that this year is the first year that the Chinese economy has recovered from the impact of the COVID-19 pandemic.
He added that the country withstood risks and challenges from abroad and internally, which led to an increase in the gross domestic product by 5.2% on an annual basis during the first three quarters of this year.
The official said that recent forecasts issued by several international institutions, including the World Bank, the International Monetary Fund and the Organization for Economic Cooperation and Development, all showed that China could achieve the growth target of about 5 percent this year.
According to the latest data issued by the International Monetary Fund, China’s local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China’s economic output in 2022, up from 62.2% in 2019.
Real estate sector
The real estate sector in China has recorded remarkable growth since the liberalization of the real estate market in 1998, but in recent years the authority has considered that its large level of debt poses a threat to the Chinese economy and financial system.
Since 2020, Beijing has tightened the conditions for groups to obtain credits, limiting the sources of financing for companies that are already heavily indebted.
This hastened the collapse of the former largest company in the sector, Evergrande, which was given until next January to submit a restructuring plan and avoid its liquidation.
