Moody’s affirms A1 rating on China, outlook remains negative
SINGAPORE – Moody’s Investors Service has affirmed China’s long-term credit rating at A1 for both local and foreign currency, while maintaining a negative outlook.
The decision reflects the challenges facing China, including mounting debt pressures and global trade uncertainties.
According to Moody’s official report, published Tuesday (27/5), the A1 rating affirmation reflects the size of China’s economy, its growing innovation capacity, and the strong support from its domestic financial system for government financing needs.
However, the outlook remains negative due to long-term risks stemming from international trade tensions and the potential for fiscal deterioration should exports continue to weaken.
The agency projects China’s economic growth to slow to 3.5–4% by 2030, although it anticipates higher-quality growth driven by more productive sectors.
Moody’s also highlighted the restructuring of Local Government Financing Vehicles (LGFVs) as a key driver of China’s rising debt burden, which it expects to reach 86% of GDP by 2028.
Nonetheless, China’s high domestic savings rate and low interest rates help to maintain fiscal sustainability.
Moody’s noted that some economic risks have evolved since the outlook was downgraded to negative in December 2023. Risks related to central government support for local governments and state-owned enterprises (SOEs) have subsided, due to more consistent policy direction.
Still, Moody’s flagged new trade-related threats to China’s economy, despite easing tensions with the United States. These issues could hinder China’s transition to a productivity-led growth model.
The agency also cited China’s heavy reliance on exports and domestic consumption. Government efforts to boost consumption are expected to provide only temporary relief.
Moody’s said China’s financial system remains relatively stable due to state dominance in the banking sector and tight capital controls, which mitigate risks of capital flight and currency volatility.
The rating agency sees no near-term prospects for upgrading China’s rating, stating that the current level already reflects the strengths of Asia’s largest economy. (EF/KR)