China ‘disappointed’ at Moody’s downgrade of sovereign bonds outlook to negative

Beijing said it was “disappointed” at the decision on Tuesday by international ratings agency Moody’s Investors Service to cut the outlook for Chinese sovereign bonds from stable to negative.

Moody’s, though, kept its rating for China’s sovereign bonds unchanged at A1, meaning they are still of upper-medium investment grade, with low credit risk and financial and institutional resources to repay debt and “manage the transition in an orderly fashion”.

The agency attributed the decision to downgrade the outlook to “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, posing broad downside risks to China’s fiscal, economic and institutional strength”, according to a statement emailed to the Post.

“Moody’s concerns over China’s economic growth prospects and fiscal sustainability are unnecessary,” the Ministry of Finance said on Tuesday.

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Moody’s last downgraded China’s credit rating in 2017, with Chinese officials at the time calling the move “inappropriate” and “overestimated”.

Overseas doubts over China’s property crisis and local government debts remain, despite Beijing’s determination to eradicate risks.

Moody’s outlook also factored in “increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector”, it added.

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Downgrades to outlooks often precede a ratings downgrade in some practices.

The agency also questioned the “effectiveness” of some of the policies rolled out by Beijing, including strategies that seek economic rebalancing “while preventing moral hazard” and “containing the impact on the sovereign’s balance sheet”.

China’s rating, though, is lower than the top Aaa offered to the United States and Germany.

The ministry added the Chinese economy would maintain a positive trend in the long term, with risks associated with the property market and local government debts set to remain controllable.

Fiscal revenues for most local governments have grown in the first three quarters of the year, with nearly half reporting double-digit growth, it said.