Moody's announces downgrading China's credit outlook from "stable" to "negative”


(MENAFN) In a notable move, Moody's, the global credit rating agency, announced on Tuesday a shift in its outlook for China's credit rating, downgrading it from "stable" to "negative." This adjustment comes in the backdrop of mounting concerns surrounding the debt of the world's second-largest economy. Moody's underscored its decision in a detailed note, citing a rising trend indicating that the Chinese government and the broader public sector are increasingly likely to extend financial support to regional authorities and financially distressed public enterprises.

According to Moody's, this inclination toward financial assistance poses significant risks to China's financial, economic, and institutional strength. The agency pointed to indicators of "weaker" economic growth and challenges in the nation's formidable real estate sector, which plays a pivotal role in China's economic landscape. The downgrade reflects growing apprehensions about the economic trajectory of the Asian giant.

In response to Moody's decision, the Chinese Ministry of Finance expressed its disappointment, asserting that China possesses the capability to confront and manage risks and challenges effectively. The ministry denounced what it deemed as "unjustified fears" voiced by the rating agency, emphasizing China's resilience in the face of economic headwinds.

The real estate sector, traditionally a cornerstone of China's economic growth, is particularly under scrutiny. Together with the construction industry, it has historically accounted for a quarter of the country's gross domestic product (GDP). The sector has also been a vital source of income for local governments, which now find themselves grappling with significant financial challenges after extensive spending over the past three years to combat the Covid-19 pandemic.

In an effort to revitalize the ailing real estate sector, Chinese authorities have implemented a series of support measures in recent months. However, the outcomes of these initiatives have been modest, raising concerns about the sector's ability to regain its former robustness. The downgrade by Moody's serves as a stark indicator of the challenges facing China's economy, particularly in the crucial real estate domain, and suggests a potential impact on the nation's overall financial stability.

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