On Tuesday (5 December), Moody's ratings agency downgraded its outlook on China's government credit ratings from stable to negative. This decision was influenced by a decrease in medium-term economic growth and the continuous contraction of the property sector.
According to The Hindu, Moody's has confirmed China's A1 long-term local and foreign-currency issuer ratings. The firm also projects an annual GDP growth rate of 4.0 per cent for the country in 2024 and 2025.
The shift towards a negative perspective is indicative of increasing signs that financial aid may be required for debt-burdened local governments and state companies. This could pose extensive threats to China's fiscal, economic, and institutional robustness, according to a statement by Moody's.
The globe's second largest economy has faced difficulties in achieving a robust recovery after COVID this year, due to a worsening housing market crisis, risks associated with local government debt, sluggish international growth, and geopolitical tensions that have all impacted momentum.
A series of policy support measures have only provided slight benefits, thereby increasing the urgency for authorities to implement more stimulus.
The Finance Ministry of China expressed its disappointment over Moody's downgrade, while asserting that the economy will sustain its recovery and positive trajectory. They also mentioned that the risks associated with property and local government are manageable.
Although the economy is projected to meet the government's yearly growth goal of approximately 5 per cent this year, Moody's anticipates that China's yearly economic growth will decelerate to an average of 3.8 per cent from 2026 to 2030.
Nishtha Anushree is Senior Sub-editor at Swarajya. She tweets at @nishthaanushree.
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