On Tuesday, credit rating company Moody's downgraded its assessment of Chinese government bonds to negative, citing concerns associated with the country's deteriorating economy and real estate sector.
According to Moody's, the downgrade—which is the first for China since 2017—reflects the risks associated with state-owned businesses and local and regional governments' financial difficulties.
In a statement, the credit rating agency indicated that it will keep its A1 rating on Chinese government bonds but changed it from "stable" to "negative."
China's Ministry of Finance hit back at Moody's. The ministry said in a statement that it was "disappointed" about the grader cutting its outlook, adding that the economy "will be highly resilient and has large potential," per translations from Bloomberg.
China has struggled to kickstart its economy in 2023 after three years of harsh zero-COVID lockdowns, with growth figures coming in below forecasters' expectations.
The second-biggest economy in the world had been contracting before a crackdown on excessive borrowing in 2020, which resulted in the default of several real estate developers. These issues have put strain on local government budgets and placed certain lenders in jeopardy, which has further hindered the economy.
A property crisis that has put two enormous real estate developers, Evergrande and Country Garden, in danger of collapsing due to their failure to make bond repayments, has also proven difficult for policymakers to control.
According to the credit rating agency, China's economy will expand at a 4% annual rate in 2024 and 2025 before averaging 3.8% growth during the remaining years of this decade.
China's blue-chip stocks slumped to near 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. Meanwhile, Hong Kong stocks extended losses.
China increased the target for the 2023 budget deficit from 3% to 3.8% of GDP in October by announcing plans to sell 1 trillion yuan ($139.84 billion) in sovereign bonds by the end of the year in an effort to boost economic growth.
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