Moody's cuts China credit outlook to negative, cites slowing economic growth, property crisis

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Credit rating agency Moody’s has downgraded its outlook for Chinese sovereign bonds to negative, citing risks from a slowing economy and a crisis in its property sector

HONG KONG — Credit rating agency Moody’s cut its outlook for Chinese sovereign bonds to negative on Tuesday, citing risks from a slowing economy and a crisis in its property sector.

Moody’s said the downgrade, its first for China since 2017, reflects risks from financing troubles of local and regional governments and state-owned enterprises.

The world’s second-biggest economy had been slowing before a 2020 crackdown on excessive borrowing brought on defaults by dozens of property developers. Those troubles have crimped local government finances and also imperiled some lenders, further dragging on the economy.

The need for government intervention to support banks and local governments poses “broad downside risks to China’s fiscal, economic and institutional strength. The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth,” Moody's said in a statement.

China’s Ministry of Finance said it was “disappointed” with Moody’s decision to lower the outlook.

“Since the beginning of this year, in the face of the complex and harsh international situations, and against the background of an unstable global economic recovery and weakening momentum, China’s macro economy has continued to recover and has been advancing steadily,” the ministry said, according to an online transcript of remarks at a Q&A session Tuesday.

Shares retreated in China on Tuesday, with Hong Kong's Hang Seng dropping 1.9% and the Shanghai Composite index down 1.7%.

Separately, Moody’s affirmed China’s A1 long-term local