Moody’s Investors Service has downgraded its outlook on China’s sovereign credit rating to negative, citing concerns over a slowing economy and the weight of massive debt, which currently stands at a staggering 300% of the country’s gross domestic product (GDP). Additionally, the agency raised alarm over a potential $11 trillion in off-the-books debt, suggesting that central planners may have employed such measures to artificially boost economic growth.
Despite the media’s portrayal of the “China Miracle,” recent revelations indicate that the nation has been grappling with financial challenges for the past 15 years, turning what seemed like an economic success story into a potential global financial threat. Moody’s expressed apprehension about the country’s fiscal, economic, and institutional strength, as evidence mounts that the government and state-owned enterprises may need to provide financial support to struggling regions.
The downgrade comes at a time when China faces a confluence of economic challenges, including a crisis in the property sector, a debt crisis in weaker provinces, and a broader economic slowdown. Investors are eagerly awaiting insights into China’s economic strategy for the coming year, particularly its target for GDP growth and potential fiscal support, as the country grapples with budget constraints.
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Moody’s affirmed China’s A1 long-term local and foreign-currency issuer rating but downgraded its credit rating from Aa3 to A1 in 2017 due to concerns that efforts to stimulate growth would lead to a surge in debt levels.
Responding to Moody’s decision, China’s finance ministry expressed disappointment, emphasizing the ongoing recovery of the macroeconomy and the steady advancement of high-quality development. The ministry dismissed concerns about economic growth prospects and fiscal sustainability, asserting that China’s long-term positive fundamentals remain unchanged, positioning the nation as a key engine for global economic growth.
Moody’s anticipates China’s GDP growth to be 4% in 2024 and 2025, while the finance ministry is more optimistic, projecting economic growth to reach 5% in 2023.
Last week, the Organisation for Economic Co-operation and Development (OECD) highlighted “structural stresses” in China as a downside risk to global growth, forecasting a slowdown in the country’s growth to 4.7% in 2024 from 5.2% in the current year. The OECD cited sluggish consumption growth and weakening activity in the property sector as contributing factors to the anticipated deceleration in China’s economic expansion.
Information for this briefing was found via Financial Times and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
