China rebukes Moody's 'biased' credit outlook cut, saying concerns over growth prospects 'unnecessary'
Published: Dec 05, 2023 10:44 PM
Bustling scenes on the Bund area in Shanghai Photo: VCG

Bustling scenes on the Bund area in Shanghai Photo: VCG

China on Tuesday firmly pushed back against a decision by US ratings agency Moody's to affirm China's credit ratings but cut its outlook from stable to negative, stressing that China's economy remains resilient, it has the capabilities to deepen reforms to tackle risks and challenges, and concerns over China's growth prospects are unnecessary.

Chinese economists also said Moody's decision is biased and unprofessional, as it grossly exaggerated or manufactured risks and challenges for the Chinese economy. Judging by many factors ranging from growth speed to debt levels to institutional and governance strength, China's economy remains one of the healthiest and fast-growing among major economies and the biggest contributor to global growth, they noted. 

In a report on Tuesday, Moody's Investors Service said it reaffirms China's A1 long-term local and foreign-currency issuer ratings, but it also cut its outlook for China's government credit ratings to negative from stable, noting that China's fiscal support for local governments and the property sector poses risks to its fiscal, economic and institutional strength.

"The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector," Moody's said.

The US ratings agency's move immediately drew a firm rebuttal from Chinese officials and economists on Tuesday. 

"We are disappointed with Moody's decision to downgrade China's sovereign credit rating outlook," an official from the Chinese Ministry of Finance (MOF) said in a statement shortly after reports of Moody's move emerged on Tuesday. 

In the detailed statement, the MOF official offered point-by-point rebuttals for various problems raised by Moody's. Despite a severe and complex global situation, China's economy is rebounding and high-quality development is advancing steadily with positive trends emerging since the third quarter, the official said, China's economy is expected to continue to recover in the fourth quarter and will remain an important engine for global growth.

The official also noted that China's fiscal revenue has maintained restorative growth this year, with the national general public budget revenue increasing 8.9 percent year-on-year, of which tax revenue rose 11.9 percent. Local government fiscal revenue also maintained positive growth, with local general public budget revenue rising 9.1 percent.

On Moody's "concerns" over China's growth prospects, the MOF official said that China's GDP growth reached 5.2 percent in the first three quarters and is expected to reach the annual target of around 5 percent. On the debt issue, the official said as of 2022, outstanding national debt is at around 61 trillion yuan, and the public debt-to-GDP ratio is about 50.4 percent, lower than the international accepted 60-percent warning line and those of major and emerging market economies. 

"All these facts demonstrate that China's economy is shifting toward high-quality development, new growth drivers are taking effect and China has the ability to continue to deepen reforms and respond to risks and challenges. Moody's concerns about China's economic growth prospects and fiscal sustainability are unnecessary," the official said.

On local government debt, the official pointed a slew of measures that have been taken to tackle debt risks, which have been alleviated. On Moody's claim of adjustments in the real estate sector affecting local government fiscal revenue, the official noted measures to ensure stable local fiscal conditions and pointed out less revenue from land sales also means less spending in related areas. Overall, the impact is "controllable and structural," the official said.

Biased, exaggerated

"Moody's used to be relatively credible, but over the past six years, Moody's has been biased. It overestimates the data of the US and underestimates the data of countries other than the US, especially China and other countries that have vastly different systems than the US," Cao Heping, an economist at Peking University, told the Global Times on Tuesday. 

Cao noted that Moody's claimed China's public debt reached 80 trillion yuan instead of 60 trillion yuan and drew a stark contrast between the debt levels of China and the US. "If Moody's cut China's credit outlook to negative, it should cut the US' credit to trash," he said. 

Last month, Moody's changed the outlook on the US government's ratings to negative from stable, but it also affirmed the US' "Aaa" ratings, despite a litany of crises ranging from out-of-control debt and high inflation to chaotic governance. In comparison, Fitch Ratings downgraded the US government's top credit rating, citing fiscal deterioration over the next three years and a steady deterioration in governance over the past two decades.

Tian Yun, a Beijing-based economist, said that it is "completely unnecessary" to take Moody's downgrade seriously. In fact, from another perspective, the move reflects that international institutions are still expecting high-speed growth from China, Tian told the Global Times on Tuesday.

In its report, Moody's said it expects China's annual GDP growth to be 4 percent in 2024 and 2025. That's higher than the global growth rate of 2.9 percent in 2024 forecast by the IMF and lower than the multilateral lender's forecast of 4.6-percent growth in China in 2024. 

Also on Tuesday, China Chengxin Credit Rating Group said that it has maintained China's sovereign credit rating AA+g, with stable rating outlook. It said that China's economy still showed strong resilience in 2023, the Chinese government still has sufficient fiscal room, and the additional issuance of government bonds will also free up disposable fiscal room for local governments, it said, projecting that Chinese economy will grow by 5.3 percent in 2023 and around 5 percent in 2024.

Meanwhile, Tian said that China's GDP growth will reach 5 percent not only this year but also next year. "Only that could meet the global expectation for China's economic growth and in this regard, we have plenty of room," he said, noting more policy measures are expected from an upcoming crucial meeting on the economy to further boost growth next year.

Top Chinese policymakers are expected to convene the annual Central Economic Work Conference, which is often held around mid-December and offers a crucial window into the tone of economic policymaking for the world's second-largest economy for the coming year. Many are closely watching for clues on how top policymakers view China's current economic operation and next year's policy priorities. 

"There may be a package of policy arrangements to ensure continued recovery next year," Tian said, adding that as long as China maintains high-speed growth for several quarters, "the negative outlooks and expectations will be rectified."