Moody's Investors Service on Wednesday downgraded China's credit rating to A1 from Aa3, changing its outlook to stable from negative, citing concerns efforts to support growth will spur debt growth across the economy.

Marie Diron, senior vice president for Moody's soverign rating group, told CNBC's "Street Signs" on Wednesday that the catalyst for the downgrade was a combination of factors, including expectations that potential growth would fall to 5 percent by the end of the decade. It was Moody's first downgrade for the country since 1989, according to Reuters.

"Official growth targets are also moving down, but probably more slowly. So the economy is increasingly reliant on policy stimulus," she said, adding that was likely to spur increasing debt levels for the government.

"It's really the size of the leverage, the trends in leverage as well as the debt servicing capacities of the institutions that have that debt. When growth slows, then that points toward slower revenue growth, probably slower profitability and somewhat weaker debt servicing capacity," she added.

Unsurprisingly, China's finance ministry didn't agree with the move.

In a statement on its website, the ministry said the downgrade was based on an "inappropriate method" and that Moody's was overestimating the difficulties China's economy faced, while underestimating the government's efforts to tackle structural reforms and overcapacity.

Foreign-exchange markets reacted to the downgrade, with the Australian dollar dropping from levels around $0.7480 to as low as $0.7452 in the wake of the announcement. China is among Australia's largest export markets.

But didn't react much, with the dollar fetching 6.8940 yuan at 9:38 a.m. HK/SIN, compared with Tuesday's close of 6.8890 yuan.

"Moody's expects that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent, the rise in leverage," Moody's said in a statement. "The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole."

It expected that while economic growth would remain relatively high, potential growth rates were likely to fall in the years ahead.

Moody's estimated that while the government budget deficit in 2016 was "moderate" at around 3 percent of gross domestic product (GDP), it expected the government's debt burden would rise toward 40 percent of GDP by 2018 and 45 percent by the end of the decade.

It also expected contingent and indirect liabilities would rise, pointing to policy bank loans, bonds issued by Local Government Financing Vehicles (LGFV) and other state-owned enterprises' (SOE) investments.

Moody's added that it expected economy-wide debt of the government, households and non-financial companies would rise, as economic activity tends to be financed with debt in the absence of a sizeable equity market.</s>MOSCOW (Sputnik) — Moody’s Investors Service has downgraded China’s credit rating to A1 from the previous Aa3 level, changing the outlook from negative to stable, a press release of the Service said on Wednesday.

"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," the release said, adding that the stable outlook reflects the assessment of the risks as "balanced" at the A1 rating level.

"Economy-wide debt of the government, households and non-financial corporates will continue to rise, from 256% of GDP at the end of last year," the release added.

According to the release, the outlook was changed from negative to stable due to the assessment that China’s government will manage to "maintain economic, financial and social stability in the near term" due to the fact that the government controls parts of the economy and financial system.

China's economy has recently been experienced significant turmoil, with growth rates at record lows, an increasingly volatile stock market and the yuan sliding against other currencies. According to the official data, the country’s GDP increase in 2016 made 6.7 percent, which is the lowest in 26 years.</s>Moody's Investors Service on Wednesday downgraded China's credit rating to A1 from Aa3, changing its outlook to stable from negative, citing expectations that China's financial strength will erode somewhat over the coming years.

"Moody's expects that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent, the rise in leverage," it said in a statement. "The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole."

It expected that while economic growth would remain relatively high, potential growth rates were likely to fall in the years ahead.

Moody's estimated that while the government budget deficit in 2016 was "moderate" at around 3 percent of gross domestic product (GDP), it expected the government's debt burden would rise toward 40 percent of GDP by 2018 and 45 percent by the end of the decade.</s>How's China doing in tackling its growing debt problem? Not great, according to one of the world's top credit rating agencies.

Moody's Investors Service on Wednesday downgraded China's debt one notch to A1, its fifth-highest rating.

China's financial health will "erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows", the agency said in a statement.

The Chinese government is facing the difficult balancing act of trying to rein in the country's high levels of corporate debt while keeping the world's second largest economy growing at a steady clip.

Related: China's economic growth climbs to 6.9% in the first quarter

Beijing's reform efforts are "likely to transform the economy and financial system over time," but they're unlikely to prevent a "material rise" in debt," Moody's said.

China's economy grew 6.9% in the first quarter of this year, picking up the pace from the end of 2016. But economists say they expect it to slow down later this year as government stimulus measures fade.

Efforts by regulators in recent weeks to clamp down on risky debt in the country's financial system has unsettled investors. The benchmark Shanghai Composite is down more than 7% from the high it reached in April.

After the downgrade, Moody's said it doesn't plan to move China's rating lower than A1, which is still investment grade, anytime soon.

"The erosion in China's credit profile will be gradual and, we expect, eventually contained as reforms deepen," Moody's said.

Beijing should be able to weather any negative shocks, helped by the country's relatively strong economic growth, it added.</s>Moody's Investors Service on Wednesday downgraded China's credit rating to A1 from Aa3, changing its outlook to stable from negative.

Foreign-exchange markets reacted to the news, with the Australian dollar dropping from levels around $0.7480 to as low as $0.7452 in the wake of the announcement. China is among Australia's largest export markets.

"Moody's expects that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent, the rise in leverage," Moody's said in a statement.

"The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole."

It expected that while economic growth would remain relatively high, potential growth rates were likely to fall in the years ahead.

Moody's estimated that while the government budget deficit in 2016 was "moderate" at around 3 percent of gross domestic product (GDP), it expected the government's debt burden would rise toward 40 percent of GDP by 2018 and 45 percent by the end of the decade.

It also expected contingent and indirect liabilities would rise, pointing to policy bank loans, bonds issued by Local Government Financing Vehicles (LGFV) and other state-owned enterprises' (SOE) investments.

Moody's added that it expected economy-wide debt of the government, households and non-financial companies would rise, as economic activity tends to be financed with debt in the absence of a sizeable equity market.

It said that the recent focus on capital outflows has constrained the development of domestic capital markets by restricting the cross-border flows of capital.

It noted that the financial sector remained under-developed despite recent reforms.

"Pricing of risk remains incomplete, with the cost of debt still partly determined by assumptions of government support to public sector or other entities perceived to be strategic," it said.

But Moody's shifted to a stable outlook, from negative, citing balanced risks.

The government's control of much of the economy, the financial system and cross-border capital flows offers the ability to maintain stability in the near term, Moody's said.

 

 It also pointed to large household savings estimated at around 40 percent of income and the country's "sizeable" foreign exchange reserves of around $3 trillion.</s>Our live blog is tracking market reaction after Moody's downgraded China's rating to A1 from Aa3 and changed its outlook to stable from negative.

We'll bring you the latest analysis below.</s>Moody’s Investors Services downgraded China’s long-term local and foreign currency issuer ratings on Wednesday, citing expectations that the financial strength of the world’s second-biggest economy would erode in the coming years. The downgrade by one notch to an A1 rating from Aa3 comes as the Chinese government grapples with the challenges of slowing economic growth and rising financial risks stemming from soaring debt.

“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” Moody’s said in a statement. “While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” it said.

The ratings agency also changed its outlook for China to stable from negative. China’s top leadership has identified the containment of financial risks and asset bubbles as a top priority this year. All the same, authorities have moved cautiously to avoid knocking economic growth, gingerly raising short-term interest rates. While the downgrade is likely to modestly increase the cost of borrowing for the Chinese government and its state-owned enterprises, it remains comfortably within the investment grade rating range.

China’s Shanghai Composite index fell more than 1 percent in early trade, while the yuan currency in the offshore market briefly dipped nearly 0.1 percent against the U.S. dollar after the ratings agency announced its decision. The Australian dollar, often see as a liquid proxy for China risk, also slipped. “It’s quite clear that it’s going to be quite negative in terms of sentiment, particularly at a time when China is looking to derisk the banking system, as well as at a time when there’s going to be some potential restructuring of SOEs,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank’s Treasury division.

In March 2016, Moody’s cut its outlook on China’s government credit ratings to negative from stable, citing rising debt and uncertainty about the authorities’ ability to carry out reforms and address economic imbalances. Rival ratings agency Standard & Poor’s downgraded its outlook to negative in the same month. S&P’s AA- rating is one notch above both Moody’s and Fitch Ratings’ A+ rating. Moody’s said its now stable outlook reflected the assessment that risks were balanced. China’s potential gross domestic product growth was likely to slow towards 5 percent in the coming years, but the slowdown is likely to be gradual due to expected fiscal stimulus, it said.

Authorities have stepped up efforts over the last several months to curb debt and housing risks, and a raft of recent data has signaled a cooling in the economy, which grew a solid 6.9 percent in the first quarter. Government-led stimulus has been a major driver of economic growth over recent years, but the pump-priming has also been accompanied by runaway credit growth and has created a mountain of debt – now standing at nearly 300 percent of GDP.

Moody’s said it expects the government’s direct debt burden to rise gradually towards 40 percent of GDP by 2018 “and closer to 45 percent by the end of the decade”. Economy-wide debt of the government, households and non-financial corporates would also continue to rise, it said. “Taken together, we expect direct government, indirect and economy-wide debt to continue to rise, signaling an erosion of China’s credit profile which is best reflected now in an A1 rating,” it said.

For all the latest India News, download Indian Express App now</s>SHANGHAI — Moody’s Investors Service cut China’s sovereign credit rating for the first time in nearly three decades, citing expectations that the country’s financial strength will deteriorate in the coming years as debt keeps rising and the economy slows.

In a Wednesday statement, Moody’s said it downgraded China’s rating to A1 from Aa3, while changing its outlook to stable from negative. In March of last year, it cut China’s outlook to negative from stable. Moody’s last cut its China credit rating in November 1989, not long after the bloody crackdown on mass protests in Beijing’s Tiananmen Square rocked the nation. Moody’s now rates China’s credit alongside that of countries such as Japan, Saudi Arabia and Israel.

The news triggered an early selloff in Chinese stocks, with shares in Shanghai SHCOMP, -0.50% falling more than 1% before recovering, in addition to modest losses for the Chinese currency in the freely traded offshore market. The impact on the heavily-controlled domestic currency and bond markets was muted.

The move comes as Beijing has intensified a campaign in recent months to rein in risky investment and financing practices that pose a serious threat to the stability of the world’s second-largest economy. The People’s Bank of China has raised a suite of key short-term interest rates twice since early February, while the banking regulator cracked down on investment products with highly leveraged bets in capital markets.

“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” Moody’s said in the statement.

An expanded version of this report is available at WSJ.com

Men punished with lashings for same-sex relations in Indonesia</s>Moody's Investor Services has downgraded China's credit rating for the first time in almost three decades.

The credit rating agency warned that the financial strength of the world's second-biggest economy is likely to deteriorate as growth slows and national debt climbs.

The cut to China's long-term local currency rating to A1 from Aa3 puts it on a par with the Czech Republic, Estonia, Israel, Japan and Saudi Arabia.

The last time Moody's downgraded China was in November 1989, a few months after a bloody Tiananmen Square protest crackdown.

"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," it said in a statement.

This is likely to make the economy more reliant on policy stimulus, which could exacerbate rising debt levels, it added.

Moody's also changed its China outlook to stable from negative, saying risks are "balanced" and the "erosion in China's credit profile will be gradual and, we expect, eventually contained as reforms deepen".

China grew 6.7 per cent last year, down from 6.9 per cent in 2015 - the slowest growth since 1990.

Moody's sees China's growth potentially declining to near 5 per cent over the next five years, even as the government's direct debt burden rises towards 40 per cent of gross domestic product by 2018 from about 14 per cent now.

The downgrade is likely to modestly lift borrowing costs for Beijing and its state-owned enterprises, but remains comfortably within the investment-grade rating range.

China's authorities dismissed the ratings cut, saying Moody's was exaggerating the country's economic difficulties and underestimating reform efforts.

Chinese policymakers have been making efforts to clean up lending practices, which have been viewed as a threat to financial stability.

The move brings Moody's in line with rival Fitch, which has had an equivalent A+ rating on China since November 2007. China's financial markets were shaken by the move but quickly brushed it off. Stocks, bonds and the currency were little changed.

The Shanghai Composite Index closed up 0.1 per cent, after slumping as much as 1.3 per cent earlier in the day.

United Overseas Bank economist Suan Teck Kin said Moody's view "appears to be overly pessimistic".

"Our projections show that China would still be able to maintain (a growth rate) of around 6 per cent by 2020," he noted.

"We see ample buffers from the central government and People's Bank of China to manage the economic and financial risks," Mr Suan added.</s>Elisabeth is a reporter for Verdict, covering global news, economics and business. You can reach her at elisabeth.perlman@verdict.co.uk

Moody’s, one of the world’s biggest bond credit rating service downgraded China’s credit ratings on Wednesday for the first time in nearly 30 years.

The move comes amid concerns that economic growth in the country will continue to slow in the coming years, while debt levels rise.

Moody’s said it expects the government’s direct debt burden to rise gradually toward 40 percent of GDP by 2018 “and closer to 45 percent by the end of the decade.”

The Chinese economy expanded by 6.7 percent in 2016 compared with 6.9 percent the previous year — the slowest growth since 1990.

China’s finance ministry said Moody’s was exaggerating the country’s economic difficulties as well as its ability to deepen reform and boost demand.

The ministry added that the decision to downgrade China’s credit rating was based on an “inappropriate method”.

However, Julian Evans-Pritchard, China economist at Capital Economics in Singapore, said measures to resolve the debt overhang, including debt-for-equity swaps at state companies, don’t go far enough.

It’s reached the point where the bad debt problem is just so large the government will have to step in to resolve it at some point, and that obviously means at some point a sizeable increase in government debt.

The other two main credit rating agencies — Standard & Poor’s and Fitch — have so far kept their ratings the same.

The former agency’s outlook for China is negative at AA-, and the latter’s outlook is stable at A+.

China’s president Xi Jinping will hope to secure a second five-year term at the Communist Party Congress later this year.
Moody's Investors Service downgrades the credit rating of the People's Republic of China from AA3 to A1.