Moody's Downgrades China's Credit Rating Outlook to Negative... China Responds with "Disappointment" (Comprehensive)
Reflecting Lower Medium-Term Economic Growth and Contraction in the Real Estate Sector
International credit rating agency Moody's downgraded China's sovereign credit outlook from 'stable' to 'negative' on the 5th.
On the same day, Moody's confirmed China's sovereign credit rating at A1, the fifth-highest rating, and stated that it expects China's annual gross domestic product (GDP) growth rate to be 4.0% in 2024 and 2025.
The downgrade of the sovereign credit outlook reflects increasing evidence that China will need to provide financial support to heavily indebted local governments and state-owned enterprises, which Moody's explained poses broad risks to China's fiscal, economic, and institutional capacity. Moody's said, "This outlook change reflects structurally and persistently lower medium-term economic growth and ongoing contraction in the real estate sector."
Moody's expects China's annual economic growth rate to meet the government target of about 5% this year but forecast a slowdown to an average of 3.8% from 2026 to 2030.
China's Ministry of Finance expressed disappointment over Moody's downgrade of the sovereign credit outlook. In a statement posted on its website, the Ministry said, "Despite an unstable global economic recovery and weakening momentum, China's macroeconomy has continued to show recovery this year with steady qualitative development," asserting that the Chinese economy will maintain a positive trend and rebound.
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It emphasized that risks in the real estate sector and local governments are controllable. The Ministry rebutted, stating, "We are mitigating risks through comprehensive policies such as improving monitoring mechanisms, prohibiting disguised illegal borrowing, and blocking the establishment of new platform enterprises," and pointed out that China's national debt at the end of last year was 61 trillion yuan (approximately 1,120 trillion won), with the national debt-to-GDP ratio at 50.4%, which is lower than the internationally recognized risk threshold of 60%.
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