Moody’s has downgraded the outlook on China’s credit rating from “stable” to “negative” due to concerns about the country’s post-pandemic recovery, weak consumer and business confidence, a persistent housing crisis, and a global economic slowdown. The downgrade reflects the rising evidence that financial support will be provided by the government and wider public sector to financially stressed regional and local governments and state-owned enterprises, posing broad downside risks to China’s fiscal, economic, and institutional strength. Despite the outlook change, Moody’s retained China’s “A1” long-term rating on the country’s sovereign bonds.

The move underscores concerns over rising debt levels and the impact on broader growth in the world’s second-largest economy as Beijing resorts to fiscal stimulus to support local governments and contain the spiraling debt crisis among the country’s property developers.

Moody’s anticipates China’s economy to grow 4% in 2024 into 2025 “with structural factors including weaker demographics driving a decline in potential growth to around 3.5 per cent by 2030.” Real estate and construction compos about a quarter of China’s GDP, and the recent property slump has only contributed to the nation’s debt crisis.