US ratings agency Moody’s has cut its outlook for China from “stable” to “negative”. While reaffirming its current debt rating, the agency warned that reforms were needed to avoid a downgrade. Moody’s said the change in outlook was based on expectations that Beijing’s fiscal strength would continue to decline. The negative outlook comes on the heels of fresh data suggesting China’s economy is continuing to lose steam. Moody’s said it was concerned over China’s incomplete implementation of much needed reforms.
High debt burden
“Without credible and efficient reforms, China’s GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable,” Moody’s said in a note. “Government debt would increase more sharply than we currently expect.” But the ratings agency did confirm China’s current Aa3 rating, saying that there was still time to address the current economic imbalances and implement reforms.
Just one week ago, China sought to assure the global economic community over the strength of its economy. At the G20 meeting in Shanghai, the country’s finance minister Lou Jiwei insisted Beijing could tackle the pressures it is currently facing. China’s economy, the second-biggest in the world, is growing at the slowest rate in 25 years as it attempts to move from an export-led nation to one led by consumption and services. The slowdown in China’s economy has created considerable uncertainty in financial markets and has led to sharp falls in commodity prices. (BBC News, 2016)