Credit：Visual China

Moody’s announced  that it maintained the A1 long-term rating on China’s sovereign bonds but lowered its outlook for the government credit ratings from stable to negative, suggesting the agency could downgrade the rating in the future. The outlook adjustment was made as Moody’s believes the financial support for some local governments and state-owned enterprises as well as the property market would pose risks to China’s fiscal and economic strength, and could knock its economic recovery off the track.

The need for central government’s support poses “broad downside risks to China’s fiscal, economic and institutional strength”, and “the outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector,”according in a statement released on Tuesday. “These trends underscore the increasing risks related to policy effectiveness, including the challenge to design and implement policies that support economic rebalancing while preventing moral hazard and containing the impact on the sovereign’s balance sheet,” Moody’s said in the statement.

Moody’s expected China’s annual economic growth will slow to 4% in 2024 and 2025 and further down to an average  of 3.8% in the rest of the decade. The New York-based credit rating firm said structural factors like weaker demographics will likely drive a decline in growth to around 3.5% by 2030.

“We are disappointed about Moody’s decision to cut the outlook of our sovereign credit,” and its concerns about China's growth prospects and fiscal sustainability are “unwarranted” , an official from the Ministry of Finance of China commented later Tuesday, according to a press at the ministry’s website. Since the beginning of this year, in the face of the complex and severe international situation, and against the background of unstable global economic recovery and weakening momentum, China’s macro economy has continued to recover and high-quality development has steadily advanced, especially since the third quarter, positive development are further mounting and new drivers of economic growth continued to play a positive role, said the official, who added the economy in the fourth quarter is expected to maintain the upward trend.

This year marks the first year for China's economy to recover from the Covid-19 pandemic. The country has withstood risks and challenges from abroad and downward pressure brought about by multiple factors at home, seeing its gross domestic product up 5.2 percent year on year in the first three quarters, the official noted. Recent forecasts from multiple international institutions, including the World Bank, the International Monetary Fund (IMF), and the Organization for Economic Co-operation and Development (OECD), all showed that China can achieve its growth target of around 5 % this year, and IMF also anticipated China will contribute more than 30% to global economic growth in the year, the official said.

In line with the positive economic recovery trend, China’s fiscal revenue has been well on the track to recovery. In the first three quarters, the national general public budget revenue increased 8.9% year-over-year (YoY) and the national tax revenue out of the revenue rose 11.9% YoY, driven by the ongoing economic recovery and the overall improvement since the beginning of this year, the official said. Looking forward, the official said the Chinese economy will still have huge resilience and potential, and will remain an important engine for stable growth of the world economy as its long-term sound fundamentals remain unchanged.

China's vast domestic market has great demand potential, and the situation of employment and pricing is generally stable, said the official, adding that the economy's internal impetus will continuously increase as the country accelerates promoting high-quality development.

In recent years, revenue from the property-related taxes has declined due to the struggling real estate market, but its proportion in local general public budget revenue has not dropped significantly, the official clarified. Generally speaking, the impact of the downturn in the real estate market on local general public budgets and government-managed fund budgets is controllable and structural, the official said.

China Chengxin International Credit Rating Co., said late Tuesday that its outlook for the nation’s sovereign credit was stable. The leading domestic rating agency also said the government has “ample” room to control the rise in debt risks when compared with western countries.

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