Moody’s Issues “Negative” Outlook for China’s Credit Rating Due to Escalating Debt Worries

Moody’s, the ratings agency, downgraded China’s credit rating outlook from “stable” to “negative” on Tuesday, citing escalating debt in the world’s second-largest economy. Beijing expressed its disappointment with the decision.

According to the U.S. agency’s note, the downgrade is a response to mounting indications that the government and broader public sector will extend financial support to financially strained regional and local governments, as well as state-owned enterprises. Moody’s emphasized that this situation poses significant risks to China’s fiscal, economic, and institutional strength.

The agency highlighted heightened risks associated with structurally and persistently lower medium-term economic growth, along with the continued downsizing of the property sector. China’s extensive property sector, comprising about a quarter of the gross domestic product, is grappling with a profound debt crisis, with major developers facing the possibility of going out of business owing hundreds of billions of dollars.

In response to Moody’s decision, Beijing’s finance ministry expressed disappointment and noted China’s ongoing macroeconomic recovery in the face of a complex and challenging international environment. The spokesperson mentioned that China’s macroeconomy has been recovering throughout the year despite global economic instability and weakening momentum.

China’s recovery, however, faces challenges such as weak consumer and business confidence, a persistent housing crisis, record youth unemployment, and a global economic slowdown that is impacting demand for Chinese goods. Despite a tough year for the world’s second-largest economy, recent weeks have shown signs of improvement, with third-quarter growth surpassing expectations at 4.9 percent.