China reforms not enough to arrest mounting debt, says Moody's after downgrading nation’s credit rating
Government strongly criticised the downgrade, saying it was based on “inappropriate methodology”
China’s structural reforms will slow the pace of its debt build-up, but will not be enough to arrest it and another credit rating cut for the country is possible down the road unless it gets its ballooning credit in check, officials at the ratings agency Moody’s said.
The comments came two days after Moody’s downgraded China’s sovereign ratings by one notch to A1, saying it expects the financial strength of the world’s second-largest economy to erode in coming years as growth slows and debt continues to mount.
Moody’s Investors Service also changed its outlook on China from “negative” to “stable”, suggesting no further ratings changes for some time.
China has strongly criticised the downgrade, asserting it was based on “inappropriate methodology”, exaggerating difficulties facing the economy and underestimating the government’s reform efforts.
Moody’s official Marie Diron on Friday by saying that the ratings agency has been encouraged by the “vast reform agenda” undertaken by the Chinese authorities to contain risks from the rapid rise in debt. However, while Moody’s believes the reforms may slow the pace at which debt is rising, they will not be enough to arrest the trend and levels will not drop dramatically, Diron said.
