Moody’scuts China credit outlook, warns of lower growth, property crisis

Published

2 years ago

December 7, 2023

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Ratings agencyMoody’sslapped a downgrade warningon China’s credit rating on Tuesday,saying costs to bail out localgovernmentsand state firmsandcontrol itsproperty crisiswould weigh on the world’s No. 2 economy.

The downgrade reflects growing evidence that authorities will have to provide more financial support for debt-laden local governments and state firms, posing broad risks to China’s fiscal, economic and institutional strength,Moody’ssaid in a statement.

Historically, about one-third of issuers have been downgraded within 18 months of the assignment of a negative rating outlook.

“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,” Moody’s said.

China’s blue-chip stocks slumped to nearly five-year lows on Tuesday amid worries about the country’s growth, with talk of a possible cut by Moody’s denting sentiment during the session, while Hong Kong stocks extended losses.

China’s major state-owned banks, which had been seen supporting the yuan currency all day, stepped up US dollar selling very forcefully after the Moody’s statement, one source with knowledge of the matter said.

The yuan was little changed by late afternoon.

The cost of insuring China’s sovereign debt against a default rose to its highest since mid-November.

“Now the markets are more concerned with the property crisis and weak growth, rather than the immediate sovereign debt risk,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

US-listed shares of Chinese companies fell, with Baidu off 0.5%, Alibaba Group Holding down 1.1%, and JD.com Jdropping 1.9%.

The move by Moody’s was the first change on its China view since it cut its rating by one notch to A1 in 2017, also citing expectations of slowing growth and rising debt.

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WhileMoody’saffirmedChina’s A1 long-term local and foreign-currency issuer ratings on Tuesday — saying the economy still has a high shock-absorption capacity — it said it expects the country’s annual GDP growth to slow to 4.0% in 2024 and 2025, and to average 3.8% from 2026 to 2030.

Moody’s main peer, S&P Global, said later in a long-scheduled global outlook call that its big concern was that “spillovers” from any worsening in the property crisis could push China’s gross domestic product growth “below 3%” next year.

Moody’s outlook downgrade comes ahead of the annual agenda-setting Central Economic Work Conference, which is expected around mid-December, with government advisers calling for a steady growth target for 2024 and more stimulus.

Analysts say the A1 rating is high enough in investment-grade territory that a downgrade is unlikely to trigger forced selling by global funds.

S&P and Fitch, the other major global rating agency, both rate China A+, the equivalent of Moody’s A1, and have stable outlooks.

China’s Finance Ministry said it was disappointed by Moody’s decision, adding that the economy will maintain its rebound and positive trend.

It also said property and local government risks are controllable.

“Moody’s concerns about China’s economic growth prospects, fiscal sustainability and other aspects are unnecessary,” the ministry said.

Most analysts believe China’s growth is on track to hit the government’s target of around 5% this year, but that compares with a COVID-weakened 2022 and activity is highly uneven.

The economy has struggled to mount a strong post-pandemic recovery as the deepening crisis in the housing market, local government debt concerns, slowing global growth and geopolitical tensions have dented momentum.

A flurry of policy support measures have proven only modestly beneficial, raising pressure on authorities to roll out more stimulus.

“We spent the better part of three years watching China have this sort of off-and-on reopening from the pandemic, and this was the year they finally sort of officially reopened,” said Art Hogan, chief market strategist at B Riley Wealth in New York. “But the pace at which the economy has recovered from that has been disappointing.”

Analysts widely agree that China’s growth is downshifting from breakneck expansion in the past few decades.

Many believe Beijing needs to transform its economic model from an over-reliance on debt-fueled investment to one driven more by consumer demand.

Last week, China’s central bank head Pan Gongsheng pledged to keep monetary policy accommodative to support the economy, but also urged structural reforms to reduce a reliance on infrastructure and property for growth.

After years of over-investment, plummeting returns from land sales, and soaring costs to battle COVID, economists say debt-laden municipalities now represent a major risk to the economy.

Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China’s economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund.

In October, China unveiled a plan to issue 1 trillion yuan ($139.84 billion) in sovereign bonds by the end of the year to help kick-start activity, raising the 2023 budget deficit target to 3.8% of gross domestic product from the original 3%.

The central bank has also implemented modest interest rate cuts and pumped more cash into the economy in recent months.

Nevertheless, foreign investors have been sour on China almost all year.

Capital outflows from China rose sharply to $75 billion in September, the biggest monthly figure since 2016, according to Goldman Sachs.

World

Putin has agreed Ukraine can have ‘NATO-style’ security guarantee, Trump envoy says

Published

3 hours ago

August 17, 2025

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Putin has agreed Ukraine can have 'NATO-style' security guarantee, Trump envoy says

Vladimir Putin has agreed to allow Ukraine’s allies to offer it a NATO-like security guarantee as part of an eventual deal to end the war, according to US special envoy Steve Witkoff.

Mr Witkoff said the Russian president agreed to the move when he met with Donald Trump in Alaska on Friday.

Speaking to CNN on Sunday, Mr Witkoff, who was by the US president’s side at the summit, said: “We were able to win the following concession: That the United States could offer Article 5-like protection, which is one of the real reasons why Ukraine wants to be in NATO.”

Article 5 is a core principle of the 32-member collective, which states that an armed attack against one or more of its members shall be considered an attack against all. It has only been invoked once, by the US, in the wake of the 9/11 attacks in 2001.

Russia has repeatedly insisted that Ukraine cannot be allowed to join NATO and has dismissed the idea that NATO member forces could be peacekeepers under some sort of ceasefire deal.

Mr Witkoff, who has previously met with Mr Putin to discuss an end to the Ukraine war, said Friday’s summit was the first time he had heard the Russian president agree to the suggestion of NATO-like protection – and called it “game-changing”.

His comments came as Volodymyr Zelenskyy met with European Commission President Ursula von der Leyen in Brussels.

The Ukrainian president said in a post on X: “This is a historic decision that the United States is ready to take part in security guarantees for Ukraine.

“Security guarantees, as a result of our joint work, must really be very practical, delivering protection on land, in the air, and at sea, and must be developed with Europe’s participation.”

Ms von der Leyen, speaking at a news conference with the Ukrainian president, said the European Union “is ready to do its share”.

EU leaders to join Zelenskyy at White House

Sunday afternoon also saw Ms von der Leyen and Mr Zelenskyy dial in to a meeting with the coalition of the willing, a peacekeeping alliance of European leaders – some of whom will accompany Mr Zelenskyy to meet with Mr Trump tomorrow.

Ms von der Leyen will be at the crunch talks in Washington DC, as will Sir Keir Starmer, France’s Emmanuel Macron and Italy’s Giorgia Meloni.

Germany’s Chancellor Friedrich Merz and NATO Secretary General Mark Rutte will also be in attendance, after the US president reportedly extended an invitation to European leaders.

Mr Putin has reportedly made demands to take control of the eastern Donetsk and Luhansk regions of Ukraine during his summit with Mr Trump as a condition for ending the war.

In exchange, Russia would give up other Ukrainian territories held by its troops, according to several news reports citing sources close to the matter.

Russian troops currently occupy large parts of the two regions and, in September 2022, Moscow announced it was officially annexing them, alongside the Kherson and Zaporizhia regions, in a move rejected and condemned as illegal by the West.

Mr Trump is said to be planning to urge Mr Zelenskyy to agree to the conditions as part of a peace deal to end the war.

That’s despite the Ukrainian president previously ruling out formally handing any territory to Moscow, which he says would be impossible under the country’s constitution, and would deprive Ukraine of defensive lines and open the way for Moscow to conduct further offensives.

In coordinated statements following the Alaska summit, European leaders said Mr Zelenskyy must play a greater role in future talks, and that peace cannot be achieved without him.

The US president said the Washington talk with Mr Zelenskyy could potentially pave the way for a three-way meeting with Mr Putin.

On Saturday, Downing Street insisted Sir Keir and other allies stand ready to support the next phase of talks to end the war.

“At the meeting that will take place at the White House tomorrow, the Prime Minister, with other European partners, stands ready to support this next phase of further talks and will reaffirm that his backing for Ukraine will continue as long as it takes,” a statement from No 10 said.

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