Moody’s downgrades Hong Kong and Macao credit rating outlook to negative amid China’s economic concerns

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6th December 2023 – (Hong Kong) Moody’s Investors Service, the globally renowned credit rating agency, has revised its credit rating outlook for Hong Kong and Macao from ‘Stable’ to ‘Negative’. This decision mainly follows a recent downgrade of mainland China’s credit rating outlook, reflecting the strong economic and trade ties both regions share with the Mainland. Nevertheless, the credit rating of both Hong Kong and Macao remains at ‘Aa3’.

This move from Moody’s underscores the ripple effects of China’s economic challenges on its Special Administrative Regions. The impact of the mainland’s economic health on these regions cannot be understated, as their economies are intricately linked with China. Given their substantial trade relationships and the close-knit economic interdependence, the financial health of China undeniably bears a significant influence on the economic prospects of Hong Kong and Macao.

In relation to Macao, its downgrade is primarily attributed to the region’s close economic and trade ties with mainland China, especially the heavy reliance of its gaming and tourism sectors on the mainland. This symbiotic relationship mirrors the exposure of banks to cross-border lending to mainland China. Thus, following China’s credit rating outlook downgrade to ‘Negative’, it was deemed necessary to also downgrade Macao’s outlook.

This negative outlook signifies a higher risk of downward adjustments to the credit ratings in the future. It is a clear indication that Moody’s believes the risk factors affecting the economic stability of these regions have increased. Despite the current rating of ‘Aa3’ indicating a low credit risk, the change in outlook is a warning of potential economic turbulence ahead for Hong Kong and Macao.

The decision by Moody’s is not without controversy. Various Chinese experts have disputed Moody’s downgrade of China’s sovereign bonds’ outlook previously, questioning the agency’s understanding of the world’s second-largest economy. They argue that Moody’s outlook change was based on outdated information about the property market and overlooked a recent array of supportive policies.