BEIJING: The outlook on China’s credit rating in the second-largest economy was downgraded from” stable” to “negative” on Tuesday ( Dec 5 ) by Ratings agency Moody.
China’s post-pandemic treatment has been hampered by a persistent housing crisis, high rates of adolescent unemployment, low consumer and business trust, as well as an ongoing global downturn that is weighing on demand for the nation of goods.
Following Beijing’s issuance of a sovereign bond worth one trillion yuan ( US$ 137 billion ) in October, these problems have put pressure on local and central governments to intervene with more financial support.
According to Moody’s, its decision “reflects growing evidence that the government and larger public business will provide financial assistance to financially strapped regional and local governments and state-owned enterprises” on Tuesday.
This “poses large problem risks to China’s fiscal, financial, and institutional strength,” according to the statement.
The action, it continued, “reflects the increased risks related to functionally and consistently lower medium-term economic development and the continuous shrinking of the house sector.”
With some of the biggest developers in China owing hundreds of billions of dollars and facing bankruptcy, the country’s huge real estate industry is mired in a severe debt problems.
Authorities are on top as debt worries fuel consumer trust, cause home prices to fall, and, more importantly, pose a threat to other industries in an already weak economy.
About 25 % of China’s gross domestic product is made up of construction and real estate.
In response, the finance ministry of Beijing expressed its “dissatisfaction with Moody’s choice.”
China’s micro economy has continued to recover since the beginning of this year, despite the complexity and severity of the global economic recovery and the waning speed of that recovery, according to a spokesperson.
It is needless for Moody to be concerned about China’s prospects for economic development and fiscal sustainability.
After a challenging year for the world’s second-largest economy, there have been lulls of life in recent weeks, with third-quarter growth coming in higher than anticipated at 4.9 %.
China wants to grow by about 5 % this year, up from a low point last year when stringent Covid restrictions paralyzed the market.
According to Moody’s, the economy is expected to grow by 4.0 percent between now and 2025,” with fundamental factors including weaker demographics driving a decrease in prospective growth to around 3.5 percent by 2030.”
To counteract the diminished role of the property market, it added,” substantial and coordinated changes will be required for use and higher value-added production to drive development.”