China rebukes Moody’s outlook downgrade and asserts economic resilience amid unfounded concerns


5th December 2023 – (Beijing) In a robust response to the U.S. ratings agency, Moody’s Investors Service, China on Tuesday vehemently contested the agency’s decision to downgrade its outlook from stable to negative, while reaffirming China’s A1 long-term local and foreign-currency issuer ratings. Chinese authorities assert that their economy remains robust and well-equipped to deepen reforms and tackle associated risks and challenges. They argue that Moody’s concerns about China’s growth prospects are baseless.

Chinese economists also criticised Moody’s decision as biased and unprofessional, accusing the agency of inflating or fabricating risks and challenges for the Chinese economy. They emphasise that China’s economy, when assessed by various factors including growth speed, debt levels, and institutional and governance strength, remains one of the healthiest and fastest-growing among major economies. It also continues to be a significant contributor to global growth.

In a report released on Tuesday, Moody’s justified its decision by citing risks posed by China’s fiscal support to local governments and the property sector to its fiscal, economic, and institutional strength. Moody’s also identified “increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector” as reasons for the downgrade.

Chinese officials and economists were quick to respond. An official from the Chinese Ministry of Finance (MOF) issued a detailed statement, offering point-by-point rebuttals to Moody’s assessment. They highlighted the resilience of China’s economy, which despite global challenges, has been witnessing a rebound and advancing steadily with high-quality development since the third quarter. They expect this trend to continue in the fourth quarter, thus reinforcing China’s role as a critical engine for global growth.

The MOF official also emphasised the restorative growth in China’s fiscal revenue this year, with the national general public budget revenue increasing by 8.9 per cent year-on-year, and tax revenue rising by 11.9 per cent. Local government fiscal revenue too has seen positive growth, with local general public budget revenue increasing by 9.1 percent.

Addressing Moody’s concerns over China’s growth prospects, the official pointed out that China’s GDP growth reached 5.2 per cent in the first three quarters and is expected to meet the annual target of around 5 per cent. In terms of debt, the official stated that as of 2022, the outstanding national debt is around 61 trillion yuan, and the public debt-to-GDP ratio is about 50.4 per cent, which is comfortably below the internationally accepted 60-per cent warning line and lower than those of major and emerging market economies.

Addressing local government debt, the MOF official outlined measures taken to mitigate debt risks, which have been successful. The official also countered Moody’s claim about adjustments in the real estate sector affecting local government fiscal revenue, stating that less revenue from land sales also implies less spending in related areas, making the impact “controllable and structural.”

On the other hand, Cao Heping, an economist at Peking University, criticised Moody’s for its bias. He pointed out that over the past six years, Moody’s has consistently overestimated U.S. data and underestimated that of other countries, particularly China.

Other critics, such as Tian Yun, a Beijing-based economist, dismissed Moody’s downgrade as “completely unnecessary.” He suggested that the downgrade reflects that international institutions continue to harbour high growth expectations from China.

China Chengxin Credit Rating Group, on Tuesday, maintained China’s sovereign credit rating at AA+g, with a stable rating outlook. They highlighted that China’s economy showed strong resilience in 2023, and the government still has sufficient fiscal room.

As China gears up for the annual Central Economic Work Conference, which sets the tone for economic policymaking for the upcoming year, many will be watching closely for indications of how top policymakers perceive China’s current economic operation and next year’s policy priorities.