(MENAFN- AFP)
Ratings agency Moody's on Tuesday downgraded the outlook on China's credit rating to "negative" from "stable" on the back of rising debt in the world's second-largest economy.
China's post-pandemic recovery has been hampered by weak consumer and business confidence, a persistent housing crisis, record youth unemployment and a global slowdown that is weighing on demand for the country's goods.
Those woes have piled pressure on central and local governments to step in with more financial support following a one trillion yuan ($137 billion) sovereign bond issuance by Beijing in October.
Moody's said Tuesday its decision "reflects rising evidence that financial support will be provided by the government and wider public sector to financially stressed regional and local governments and state-owned enterprises".
This, it said, was "posing broad downside risks to China's fiscal, economic and institutional strength".
The move "reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector", it added.
China's vast property sector is mired in a deep debt crisis, with some of the nation's biggest developers owing hundreds of billions of dollars and facing going out of business.
Authorities are on edge as debt fears stoke buyer mistrust, send home prices plummeting and, crucially, threaten to infect other sectors in an already sluggish economy.
Construction and real estate account for around a quarter of China's gross domestic product.
Beijing's finance ministry said in response it was "disappointed with Moody's decision".
"Since the beginning of this year, facing a complex and severe international situation and against the backdrop of unstable global economic recovery and weakening momentum, China's macro economy has continued to recover," a spokesperson said.
"Moody's concerns about China's economic growth prospects and fiscal sustainability are unnecessary."
After a tough year for the world's number-two economy, there have been flickers of life in recent weeks, with third-quarter growth coming in more than expected at 4.9 percent.
China is aiming for around five percent growth this year -- from a low base last year when the economy was paralysed by strict Covid restrictions.
Moody's said Tuesday it expected the economy to grow 4.0 percent next year and 2025, "with structural factors including weaker demographics driving a decline in potential growth to around 3.5 percent by 2030".
"Substantial and coordinated reforms will be needed for consumption and higher value-added production to drive growth" to offset the diminished role of the property sector, it added.
MENAFN05122023000143011026ID1107537497
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.