XM does not provide services to residents of the United States of America.

Moody's cuts China credit outlook, citing lower growth, property risks

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>UPDATE 7-Moody's puts China on downgrade warning as growth, property pressures mount</title></head><body>

Adds Moody's statistic in paragraph 3, comments from S&P in paragraph 9, details and updates throughout

Dec 5 (Reuters) -Ratings agency Moody's slapped a downgrade warningon China's credit rating on Tuesday, saying costs to bail out localgovernments and state firms and control itsproperty crisis would weigh on the world's No. 2 economy.

Moody's lowered the 'outlook' on China's A1 debt rating to "negative" from "stable" less than a month after it had done the same to theUnited States' last remaining triple-A grade from a credit rating agency.

Historically, about one-third of issuers have been downgraded within 18 months of the assignment of a negative rating outlook.

Beijing likely needsto provide more support for debt-ladenlocal governments and state firms which pose "broad downside risks to China's fiscal, economic and institutional strength," it added.

Moody's also cited"increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector."

China's Finance Ministry called the decision disappointing, saying the economy would rebound and that the property crisis and local government debt worries were controllable.

"Moody's concerns about China's economic growth prospects, fiscal sustainability and other aspects are unnecessary," the ministry said.

Blue-chip stocks slumped nearly 2%to near five-year lows on growth worries, with some traders also citing speculation about Moody's statement before its release.

China's major state-owned banks, which had been supporting the yuan currency all day, steppedselling of U.S. dollars on the news, one source with knowledge of the matter said.

The cost of insuring China's sovereign debt against a default roseto its highest since mid-November, while the U.S.-listed shares of heavyweight Chinesefirms Alibaba BABA.N and JD.com JD.O dropped 1% and 2%, respectively.

"Fornow the markets are more concerned with the property crisis and weak growth, rather than the immediate sovereign debt risk," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.


It was the first change by Moody's toits China ratingsince downgrading itby one notch to A1 in 2017 when debt levels were rising.

While Moody'saffirmed the A1 ratingon Tuesday, noting thatthe economy still hada high shock-absorption capacity, it estimated China's economicgrowth would slow to 4.0% in 2024 and 2025, and average 3.8% from 2026 to 2030.

Moody's main peer,S&P Global, said later in a long-scheduled global outlook call that its big concern was that "spillovers" from any worsening in the property crisis could push China's gross domestic product growth "below 3%" next year.

China's government advisers are expected to callfor more stimulus at theannual agenda-setting 'Central Economic Work Conference' due to be held in the next week or two.

Analysts say China'sA1 rating is high enough in 'investment-grade' territory that a downgrade is unlikely to trigger forced selling by global funds.

S&P and Fitch, the other major global rating agency, both rateChina A+, the equivalent ofMoody's A1, and havestable outlooks.


Most analysts believe China's growth is on track to hit the government's target of around 5% this year, but that compares with a COVID-weakened 2022 and activity is highly uneven.

The economy has struggled to mount a strong post-pandemic recovery as the deepening housing crisis, localgovernment debt concerns, slowing global growth and geopolitical tensions have curbedmomentum.

A flurry of policy support measures have proven only modestly beneficial, raising pressure on authorities to roll out more stimulus.

"We spent the better part of three years watching China have this sort of off-and-on reopening from the pandemic, and this was the year they finally sort of officially reopened," said Art Hogan, chief market strategist at B Riley Wealth in New York.

"But the pace at which the economy has recovered from that has been disappointing."

Analysts widely agree that China's growth is slowing after the breakneck expansion ofthe past few decades. Many believe Beijing needs to transform its economic model from an over-reliance on debt-fuelled investment to one driven more by consumer demand.

Last week, China's central bank head Pan Gongsheng pledged to keep monetary policy accommodative to support the economy, but also urged structural reforms to reduce reliance on infrastructure and property for growth.


In October, China unveiled a plan to issue 1 trillion yuan ($139.84 billion) in sovereign bonds by year-end to help kick-start activity, raising the 2023 budget deficit target to 3.8% of GDP from the original 3%.

After years of over-investment, plummeting returns from land sales, and soaring costs to battle COVID, rating firms have been warning about the contingent liability risks of debt-laden Chinese municipalities.

Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China's economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund (IMF).

Capitaloutflows from China have also intensified, reaching$75 billion in September, in thebiggest monthly exodussince 2016, Goldman Sachs data showed.

($1 = 7.1430 Chinese yuan renminbi)

China's credit rating is bracing for a downgrade https://tmsnrt.rs/46Mf5e3

Reporting by Gnaneshwar Rajan and Shristi Achar A in Bengaluru, Kevin Yao in Beijing, Marc Jones in London and Lewis Krauskopf in New York; Editing by Tom Hogue, Kim Coghill, Nick Zieminski and Richard Chang


Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.