Moody's downgrades China's credit outlook to negative

Baku. 2 March. REPORT.AZ/ China’s credit-rating outlook was lowered to negative from stable at Moody’s Investors Service, which highlighted the country’s surging debt burden and questioned the government’s ability to enact reforms just days before leaders gather to approve a five-year road map for the economy.

Report informs, the government’s financial strength may come under pressure if it takes on liabilities from troubled state-owned companies, while capital outflows have limited policy makers’ scope to stimulate the weakest economy in a quarter century, the ratings company said in a statement on Wednesday. State intervention in equity and foreign-exchange markets has heightened uncertainty about the leadership’s commitment to reform, Moody’s said.

While markets shrugged off the outlook cut on Wednesday, it highlights concern among global investors that the ruling Communist Party will struggle to overhaul Asia’s largest economy at a time when capital is flowing out of the country and debt levels have climbed to an unprecedented 247 percent of gross domestic product. Chinese leaders will begin nearly two weeks of policy meetings on Saturday to map out how to tackle the nation’s economic challenges and meet the government’s goal of doubling per-capita income by 2020.

Shanghai stocks, meanwhile, have dropped 20 percent this year and the yuan has slipped 0.8 percent in onshore trading against the U.S. dollar. On Wednesday, credit-default swaps were little changed, while the Shanghai Composite Index climbed 4 percent on speculation the government will announce more economic stimulus measures. The yuan rose less than 0.1 percent.

China’s Ministry of Finance sold 20 billion yuan of 10-year bonds at 2.82 percent and the same amount of 1-year notes at 2.15 percent after the Moody’s announcement on Wednesday. The yields were lower than prevailing rates in the secondary market.

Analytical Group of Report News Agency believes that Chinese investors consider normal decisions of international rating agencies and were ready in advance. Chinese national currency yuan is at the level of 6,55 CNY/USD in comparison with the US-dollar. Deterioration of the Chinese economic indicators may increase capital flow from the country and it will cause reduction in national currencies and stock indexes.