Ratings agency Moody’s (MCO) has downgraded its credit outlook for China to “negative” from “stable,” citing rising debt levels as a significant risk to the nation of 1.4 billion people.
Specifically, Moody’s said that the Chinese government’s support and possible bailout of distressed local governments and state-owned enterprises will diminish the country’s fiscal, economic, and institutional strength going forward.
Despite the downgrade to negative, Moody’s maintained its “A1” long-term rating on China’s sovereign bonds, while expecting China’s economic growth to slow to 4% in 2024 and 2025.
Rising debt levels are expected to negatively impact growth in the world’s second-largest economy as the government in Beijing undertakes fiscal stimulus to contain a debt crisis among the country’s property developers.
China’s Finance Ministry expressed disappointment with Moody’s downgrade to its credit outlook, saying “concerns about China’s economic growth prospects and fiscal sustainability are unnecessary.”
China’s government said in October that it had launched a process allowing local governments to borrow funds for the year ahead.
Beijing also announced a rare mid-year fiscal revision, which included the issuance of 1 trillion yuan ($137 billion U.S.) in government bonds.