BEIJING: Ratings agency Moody’s on Tuesday downgraded the outlook on China’s credit rating to “negative” from “stable” on the back of rising debt in the world’s second-largest economy.

China’s post-pandemic recovery has been hampered by weak consumer and business confidence, a persistent housing crisis, record youth unemployment and a global slowdown that is weighing on demand for the country’s goods.

Those woes have piled pressure on central and local governments to step in with more financial support following a one trillion yuan ($137bn) sovereign bond issuance by Beijing in October.

Moody’s said Tuesday its decision “reflects rising evidence that financial support will be provided by the government and wider public sector to financially stressed regional and local governments and state-owned enterprises”.

This, it said, was “posing broad downside risks to China’s fiscal, economic and institutional strength”.

The move “reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector”, it added.

China’s vast property sector is mired in a deep debt crisis, with some of the nation’s biggest developers owing hundreds of billions of dollars and facing going out of business.

Authorities are on edge as debt fears stoke buyer mistrust, send home prices plummeting and, crucially, threaten to infect other sectors in an already sluggish economy.

Construction and real estate account for around a quarter of China’s gross domestic product. Beij­ing’s finance ministry said in response it was “disappointed with Moody’s decision”.

Published in Dawn, December 6th, 2023