China's battered economy suffers another blow as Moody's slashes its credit outlook

China's President Xi Jinping.

Lintao Zhang

• Moody's Investors Service slashed its outlook for Chinese government bonds to negative on Tuesday.
• The credit-rating agency cited stagnant growth and the country's ongoing property crisis.
• Beijing has rolled out stimulus packages and ramped up borrowing in a bid to support the embattled Chinese economy in 2023.

Moody's Investors Service slashed its outlook for China's credit rating on Tuesday, dealing a fresh blow to the world's second-largest economy.

The credit-rating agency said in a statement that it would maintain its A1 grade for Chinese government bonds, but cut its outlook from "stable" to "negative."

Moody's cited stagnant growth and a seemingly never-ending property crisis as factors that could hamper Beijing's ability to repay its debts.

"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," the ratings agency said.

China has struggled to kickstart its economy in 2023 after three years of harsh zero-COVID lockdowns, with growth figures coming in below forecasters' expectations.

Moody's said it expects the country's Gross Domestic Product (GDP) to expand just 4% in 2024 and 2025, and then to rise by 3.8% on average the rest of the decade.

Policymakers have also struggled to contain a property crisis that's left two massive real-estate developers – Evergrande and Country Garden – on the brink of collapse after they failed to make bond repayments.

Read more: Real estate made China rich. Now it's looking more like kryptonite.

Beijing has responded to those crises by rolling out fiscal-stimulus packages and upping its borrowing, with its budget deficits now at the highest level in more than 30 years, while local governments have also taken on more debt.

China's Ministry of Finance hit back at Moody's. It said in a statement that it was "disappointed" about the grader cutting its outlook, adding that the economy "will be highly resilient and has large potential," per translations from Bloomberg.

The Chinese yuan traded flat against the dollar Tuesday. It's fallen by over 3% against the greenback this year.

Meanwhile, China's flagship stock-market index, the CSI 300, had dropped just under 2% by the closing bell, extending its total losses for 2023 to over 12%.

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