Moody's cuts China outlook to negative

TOKYO, March 2 (KUNA) — Leading US credit rating agency Moody’s Investors Service Inc. downgraded its outlook on China’s credit rating from “stable” to “negative” on Wednesday, citing uncertainty over authorities’ capacity to implement economic reforms to address imbalances in the economy and falling foreign-exchange reserves.
“The first driver of the negative outlook on China’s rating relates to the government’s fiscal strength which has weakened and which we expect to diminish further, albeit from very high levels,” Moody’s said in a statement.
The agency pointed out that government debt has risen to 40.6 percent of China’s gross domestic product (GDP) at the end of 2015 from 32.5 percent in 2012, and it expects a further increase to 43.0 percent by 2017.
“The second driver relates to China’s external vulnerability. China’s foreign exchange reserves have fallen markedly over the last 18 months, to USD 3.2 trillion in January 2016, USD 762 billion below their peak in June 2014,” the agency said.
Moody’s warned that it could downgrade the rating if it observed a slowing pace in the adoption of reforms needed to support sustainable growth and to protect the government’s balance sheet.
Moody’s last cut China’s Aa3 rating outlook to stable from positive in April 2013. Meanwhile, the agency maintained Aa3 rating on China’s long-term debt, saying that the country’s fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. (end) mk.gta