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China Gets A Down Grade

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the staff of the Ridgewood blog

Ridgewood NJ, Moody’s issued a warning on China’s credit rating, indicating concerns about the economic impact of bailing out local governments and state-owned enterprises, as well as managing the property crisis in the world’s second-largest economy. The credit rating agency downgraded the ‘outlook’ on China’s A1 debt rating from “stable” to “negative” within a month of a similar move for the United States. Historically, approximately one-third of issuers have experienced downgrades within 18 months of a negative rating outlook.

Moody’s emphasized the need for Beijing to offer additional support to heavily indebted local governments and state-owned enterprises, identifying potential risks to China’s fiscal, economic, and institutional strength. The agency also pointed to elevated risks linked to persistently lower medium-term economic growth and the ongoing contraction of the property sector.

China’s Finance Ministry expressed disappointment with Moody’s decision, asserting that the economy would rebound and that concerns over the property crisis and local government debt were manageable. Blue-chip stocks declined nearly 2%, approaching five-year lows due to growth concerns, and China’s major state-owned banks reduced their selling of U.S. dollars following the news.

The cost of insuring China’s sovereign debt against default reached its highest level since mid-November, and U.S.-listed shares of prominent Chinese companies Alibaba and JD.com experienced declines. Moody’s, for the first time since the 2017 downgrade, affirmed China’s A1 rating, acknowledging the economy’s high shock-absorption capacity. However, Moody’s projected a slowdown in China’s economic growth to 4.0% in 2024 and 2025, with an average of 3.8% from 2026 to 2030.

S&P Global, Moody’s main peer, expressed concern in a scheduled global outlook call, highlighting the potential “spillovers” from a worsening property crisis that could push China’s GDP growth below 3% next year.

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One thought on “China Gets A Down Grade

  1. Putin going to run again…will stay in charge now through 2036.

    Only DJT would deal with this guy.

    Putin is not afraid of Biden-Obama.

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