Moody's Cuts China Credit Out 12/05 07:05

   

   HONG KONG (AP) -- Credit rating agency Moody's cut its outlook for Chinese 
sovereign bonds to negative on Tuesday, citing risks from a slowing economy and 
a crisis in its property sector.

   Moody's said the downgrade, its first for China since 2017, reflects risks 
from financing troubles of local and regional governments and state-owned 
enterprises.

   The world's second-biggest economy had been slowing before a 2020 crackdown 
on excessive borrowing brought on defaults by dozens of property developers. 
Those troubles have crimped local government finances and also imperiled some 
lenders, further dragging on the economy.

   The need for government intervention to support banks and local governments 
poses "broad downside risks to China's fiscal, economic and institutional 
strength. The outlook change also reflects the increased risks related to 
structurally and persistently lower medium-term economic growth," Moody's said 
in a statement.

   China's Ministry of Finance said it was "disappointed" with Moody's decision 
to lower the outlook.

   "Since the beginning of this year, in the face of the complex and harsh 
international situations, and against the background of an unstable global 
economic recovery and weakening momentum, China's macro economy has continued 
to recover and has been advancing steadily," the ministry said, according to an 
online transcript of remarks at a Q&A session Tuesday.

   Shares retreated in China on Tuesday, with Hong Kong's Hang Seng dropping 
1.9% and the Shanghai Composite index down 1.7%.

   Separately, Moody's affirmed China's A1 long-term local and foreign-currency 
issuer ratings.

   The credit rating firm said it expects China's economy to grow at a 4% 
annual pace in 2024 and 2025, slowing to an average of 3.8% for the rest of the 
decade.

   Factors such as "weaker demographics," as the country ages, will likely 
drive a decline in potential growth to around 3.5% by 2030, Moody's said.

   To offset the weaker property sector, China will need "substantial and 
coordinated reforms" to support more consumer spending and higher value-added 
manufacturing to support strong growth, Moody's said.

   China's recovery from the COVID-19 pandemic faltered after an initial burst 
of activity earlier in the year faded faster than expected. Despite prolonged 
weakness in consumer spending and exports, the economy is expected to grow at 
about a 5% annual pace this year.

   China's economy still has "huge development resilience and potential" and 
will remain an important engine for global economic growth in the future, the 
Finance Ministry said.