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Moody's lowers China's rating outlook to negative

Staff writer ▼ | March 2, 2016
China's credit rating outlook was downgraded by Moody's, premised on weak fiscal metrics, a fall in reserve buffers and uncertainty about the government's ability to implement reforms.
Xi Jinping
Ratings   Chinese fiscal strength is expected to diminish
Moody's Investors Service lowered the outlook to "negative" from "stable", while affirming the government bond ratings.

The sizeable foreign exchange reserve buffers give the authorities time to implement reforms and gradually address imbalances in the economy. This underpins the decision to retain its Aa3 rating, Moody's said.

Explaining the rationale for assigning a negative outlook, the agency said the fiscal strength is expected to diminish further, albeit from very high levels.

Although a significant portion of contingent liabilities is unlikely to crystallize on the balance sheet in the short term, their existence and increase in size reflect economic imbalances.

The government debt is forecast to rise to 43 percent by 2017 from an estimated 32.5 percent in 2012. Nonetheless, debt affordability is set to remain high as large domestic savings fund government debt.

Further, foreign exchange reserves of China declined markedly to $3.2 trillion in January.