Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative, underscoring global concerns about the level of debt in the world’s second-largest economy. Moody’s lowered its outlook to negative from stable while retaining a long-term rating of A1 on the nation’s sovereign bonds. China’s usage of fiscal stimulus to support local governments and its spiralling property downturn are posing risks to the nation’s economy, the rating agency said.
Moody’s warned that Beijing would need to bail out local and regional governments and state-owned enterprises that were struggling with rising debts, hampering efforts to boost investment and growth.
China’s finance ministry said it was “disappointed” with Moody’s decision when the economy was on the mend. It said the agency’s concerns were “unnecessary” when the recovery “has been advancing steadily.”
The change comes as China continues its efforts to shake off the risk of contagion from its deepening problems in the property sector, with the country increasing its borrowing as a main tool to bolster its economy. But the black mark from Moody’s should be kept in perspective: ratings downgrades or negative outlook shifts often mark the low in terms of negative “surprises” and market selloffs. Rating agencies usually follow the news rather than anticipate it.
Source: Bloomberg
Top-rated sovereign bonds
Source: Trading Economics
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