Following Moody’s Tuesday downgrading of its assessment of the credit ratings for the Chinese government from” stable” to “negative,” stock markets in Hong Kong and mainland China experienced a decline.
The Hang Seng Index, a standard for Hong Kong’s stock market, dropped 1.9 % to close on Tuesday at 16, 327, the lowest level since November 2022. Since October of this year, the Shanghai Composite Index has dropped 1.7 % to 2,972, breaking its emotional support of 3,000 once more.  ,
Investors ‘ concerns about the slowing Asian economy caused Japan’s Nikkei 225 to fall 1.37 % on Tuesday, but the index has risen 27.5 % so far this year. In 2023, the Shanghai Composite Index dropped 4.63 percent while the Hang Seng Index fell 19 %.
China’s A1 long-term local and foreign currency issuer ratings were upheld by Moody’S on Tuesday, but the company downgraded its outlook on the country to bad, citing its slower medium-to-long economic growth and continued property sector downsizing.
According to Moody’s, the shift “reflects rising data that financial aid will be provided by the government and wider public sector to economically stressed regional and local institutions and state-owned companies.”
This trend, according to the statement, “poses large downside risks to China’s governmental, economic, and institutional strength.”
It continued,” The perspective change also reflects the increased risks associated with architecturally and persistently lower medium-term economic development and the ongoing property market downsizing.”  ,
effect that is controllable
The Ministry of Finance of China stated in a speech that it is “disappointed” by Moody’s downward rating view.
It stated that Moody’s worries about the prospects for economic development in China, governmental sustainability, and other issues are superfluous.
It stated that” when our land revenue declines, our charges in transfer payment will also decrease.” Although our property-related tax revenue has decreased in recent years, its proportion to our public money has no substantially decreased.
According to the report, the effect of the property market downturn on local general public and governmental costs is controllable and architectural.
It stated that “in recent years, our nation has established an administrative system to stop and resolve regional government debt risks.”
According to the statement, the initial spread and expansion of improper and chaotic borrowing by local governments has been stopped, and the disposal of local authorities debts has yielded positive results.
The outstanding local debt at the end of last year was 62 trillion yuan ( US$ 8.68 trillion ), which included the debts of the local governments, which totaled 35.1 trillion and 25.9 trillion, respectively.  ,
China’s local debt to GDP ratio, according to the finance ministry, was only about 50.4 %, which is lower than the major economies ‘ and emerging market nations’ internationally recognized 60 % warning line.  ,
The local government financing vehicle ( LGFV ) debt, which analysts estimated at about 60 trillion yuan at the end of 2022, was not included in the official local debt figure.  ,
China’s debt-to-GDP ratio, if the LGFV debt is taken into account, should be 99 %, as opposed to the 263.9 % for Japan and the 12 % for the US.
slowing of the business
According to Moody’s, the nation will experience 4 % annual GDP growth in 2024 and 2025, and an average of 3.8 % from 2026 to 2030.
The Economic Daily, a state-owned news, declared on Tuesday that Moody’s “unwarranted and flawed” decision to cut off the credit outlook for China.
In the statement, Feng Qiaobin, assistant director of economic analysis at the Development Research Center of the State Council, was quoted as saying that Moody’s did not fully understand the Chinese economy and failed to take into account the most recent plan support for the home business and the results to be delivered.  ,
China set a 5 % economic growth goal for 2023 in March.  ,
China’s GDP increased 5.2 % in the first three quarters of this year from a year ago, according to the National Bureau of Statistics ( NBS ) on October 18.  ,
Consumption increased 6.8 %, external trade in US dollars decreased 6.4 %, and fixed-asset investment increased 3.1 % for the same period as the” three horses” of the Chinese economy.  ,
A 7.2 % increase in investment made by state-owned businesses contributed to the 3.1 % growth in fixed-asset investment. Private investment decreased by 0.6 % over the first nine months.  ,
The finance ministry stated on Tuesday that” the input of local consumption to China’s socioeconomic development continues to increase.”  ,
It stated that GDP growth was driven by consumption and investment by 4.4 and 1.6 percent items, both. Additional trade, yet, slowed GDP growth by 0.8 percent points.  ,
Read: The house loan program in China might or might not be successful.
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