Moody's Downgrades China's Credit Outlook to Negative

Moody’s has cut its outlook on the Chinese government’s credit ratings from stable to negative.

The ratings agency said on Tuesday that the move stemmed from lower medium-term economic growth and ongoing downsizing of the property sector.

Moody’s affirmed China’s A1 long-term local and foreign-currency issuer ratings and said it expects the country’s annual GDP growth to be 4.0% in 2024 and 2025.

The change to a negative outlook reflected rising evidence that authorities will have to provide financial support for debt-laden local governments and state firms, posing broad risks to China’s fiscal, economic and institutional strength, Moody’s said in a statement.

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“The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector,” Moody’s said.

The world’s second-biggest economy has struggled to mount a strong post-Covid recovery this year as a deepening crisis in the housing market, local government debt risks, slow global growth and geopolitical tensions have dented momentum.

A flurry of policy support measures have proven only modestly beneficial, raising pressure on authorities to roll out more stimulus.

China’s Finance Ministry said it was disappointed by Moody’s downgrade, adding that the economy will maintain its rebound an positive trend. It also said property and local government risks are controllable.

While the economy is seen on track to hit the government’s annual growth target of around 5% this year, Moody’s expects China’s annual economic growth to slow to an average 3.8% from 2026 to 2030.