MercoPress. South Atlantic News Agency

Moody's downgrades China's debt; Beijing insists “unnecessary to worry”

Moody's is concerned with China's economic slowdown and property crisis. The days of double digit growth are over and the declining trend according to IMF could reach 3,5% in a couple of years.

Credit risk agency Moody's is warning about growing problems with the Chinese economy, and has cut its outlook on government-s debt to negative from stable. China has become the world's second largest economy and the main trading partner, among others of South American countries.

Moody's is concerned with China's debt, economic slowdown and property crisis. The days of double digit growth are over and the declining trend according to IMF could reach 3,5% in a couple of years.

Beijing nevertheless has anticipated plans to ramp up stimulus spending to counter a weaker global demand, a collapsing property sector, and soaring youth unemployment, which could become a ticking bomb.

Some of China's largest construction companies are facing insolvency and have stopped building, leaving customers stranded. Local governments, which have borrowed billions to build infrastructure and relied on land sales to bring in revenue, are also under strain.

Moody's said the expected support for the local governments and other state-owned enterprises presented “broad downside risks to China's fiscal, economic and institutional strength”.

Absorbing even some of the liabilities would be accompanied by “material costs, which would undermine China's fiscal strength and potentially its creditworthiness”, it said.

The negative outlook on debt is a sign that Moody's could downgrade China's credit rating, which is used by investors to help assess risks associated with investing in bonds and other debt and helps inform how lenders set interest rates.

For now, however, Moody's kept intact the A1 rating for China's long term national debt, a strong grade slightly lower than that of the US.

China's finance ministry said the country's long-term prospects had not changed and it expected to be able to manage the impact of the property sector slowdown.

“China's macro-economy continues to recover and high-quality development is steadily advancing,” it said. “It is unnecessary for Moody's to worry about China's economic growth prospects and fiscal sustainability.”