US rating agency, Moody’s, has brought down China’s outlook to negative, up from stable.
Moody’s Brings China’s Rating down To Negative from Stable
The agency warned that China needed to undertake reforms to avoid an absolute downgrade.
According to Moody’s the lowered rating was based on the anticipation that China’s fiscal performance would continue to be on a decline.
The negative outlook follows new reports that China’s economy was on a sustained slump.
The agency raised concerns over China’s failure to fully implement important reforms.
In a statement Moody said, “Without adequate reforms, China’s GDP growth could decline substantially given the country’s high debt burden that makes business investment unfavorable.”
The report further added that the Chinese government debt would increase considerably than is currently anticipated.
The agency said that China’s Aa3 rating at present should not overshadow the need to pay attention to the economic issues and for reform implementation.
In the past week, China assured the world that its economy was strong when addressing a G20 meeting in Shanghai.
China’s current rating of Aa3 is only seven points above a junk rating. As such, downgrading the ratings would not come as a significant surprise to investors and they would not be hard-pressed to sell Chinese bonds.
Even then, the lowered ratings from stable to negative indicate the uncertainty among market observers who are nervous about China’s high debt that is made worse by the weak economy.
Standard & Poor has also set the same creditworthiness rates for China as Moody’ s. Flinch has rated the country a point lower even though the agency, together with S&P has a stable outlook on China.
China is the second largest economy in the world but its economic growth rate has come to its slowest in 25 years as the country seeks to move away from dependency on exports to focus on domestic consumption and services.
The slowdown has been a cause of uncertainty causing a sharp decline in commodity prices and unstable financial markets.