Moody’s Investors Service has lowered the China’s government credit rating outlook from stable to negative, according to the agency’s publication this morning. The long-term primary unsecured debt rating and the issuer’s other ratings are affirmed at 'Aa3'.
The main factors to proceed with the revision of the forecast were the deterioration in the country’s financial performance and weak prospects for their further improvement, reflected in the increasing government debt and rising contingent liabilities.
The enduring fall in the country’s reserves due to the outflow of capital could likely deteriorate the country’s external strength. Even though the Chinese reserves still remain of a massive size of US$3.2 billion, they have decreased by US$762 billion since the peak in June 2014.
Investors' uncertainty regarding the authorities’ ability to carry out reforms to address imbalances in the economy, according to the agency, also remains of concern.
Besides, the current fiscal and monetary policy provisions to reach 6.5% growth target are feared to slow the implementation of the necessary reforms, undermining the strength of the Chinese institutions, hence weakening their credibility.
Nonetheless, the current rating remained unchanged, as a large size of the country contributes to its credit potency.
”Although GDP growth is slowing, it will remain markedly higher than most of China’s rating peers. The size of the buffers available to face current fiscal and capital outflow challenges allows for a gradual implementation of reform and therefore supports an affirmation of the rating at Aa3”,
the agency reports.