Moody’s cuts China credit outlook to negative on rising debt

financialpost.com:

Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative, underscoring deepening global concerns about the level of debt in the world’s second-largest economy.

Moody’s lowered its outlook to negative from stable while retaining a long-term rating of A1 on the nation’s sovereign bonds, according to a statement. China’s usage of fiscal stimulus to support local governments and its spiralling property downturn is posing risks to the nation’s economy, the grader said.

The government pushed back soon after the outlook change was announced, saying it was “disappointed” with Moody’s decision and the nation’s economy “will be highly resilient and has large potential.” The impact of the property downturn is well under control, the finance ministry said in a statement.

The change in Moody’s thinking comes as China’s deepening property rout triggers a shift toward fiscal stimulus, with the country ramping up its borrowing as a main measure to bolster its economy. That has raised concerns about the nation’s debt levels with Beijing on track for record bond issuance this year.

“These ratings downgrades or negative outlook shifts often mark the low in terms of bad news and market sell-offs. I wouldn’t see this being the case in two to three months’ time,” said Viraj Patel, global macro strategist at Vanda Research. “It’s hard for things to get worse than current bearish expectations, and it only takes a little to see a tactical rebound or short squeeze.”

China’s economy has struggled for traction this year as a rebound from restrictive COVID Zero policies proved to be weaker than expected and the property crisis deepened. Data last week showed both manufacturing and services activities shrank in November,