Moody’s lowers China to negative

Moody's Investors Service said it changed the outlook on China's government credit ratings to negative from stable, while affirming the Aa3 long-term senior unsecured debt, issuer ratings and provisional Aa3 senior unsecured shelf rating.

The key drivers of the outlook revision are: (a) The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet; (b) a continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks; and (c) uncertainty about the authorities' capacity to implement reforms – given the scale of reform challenges – to address imbalances in the economy.

At the same time, China's fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. This underpins the decision to affirm China's Aa3 rating, Moody’s said.

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