Background on Moody’s and its Rating of China
Moody’s, a leading global credit rating agency, has maintained its negative outlook on China due to concerns that ongoing trade tensions with major partners could have a lasting negative impact on China’s credit profile.
Moody’s A1 Rating and Its Negative Outlook
Moody’s has affirmed China’s A1 rating, which was downgraded from stable to negative in December 2023. The agency stated that “the drivers of the negative outlook for China have evolved,” shifting from worries about local government debt and the health of state-owned enterprises.
“These risks have subsided following a coordinated government policy, and no longer weigh significantly on China’s A1 rating,” Moody’s said in a statement.
Fitch’s Recent Rating Action on China
In April, another rating agency, Fitch, downgraded China’s sovereign credit rating by one notch to A, citing rapidly increasing debt and deteriorating public finances.
Investor Focus on China’s Economic Health
As investors closely watch how other credit rating agencies and financial institutions assess the health of the world’s second-largest economy, following US President Donald Trump’s decision to impose 145% tariffs on China last month, Moody’s has emphasized the persisting uncertainty surrounding future trade restrictions and global trade flows.
China’s Ministry of Finance stated in a release that Moody’s decision to keep China’s rating and outlook unchanged reflects “a positive reflection of China’s economic prospects.”
Despite an early trade truce between China and the United States this month, Moody’s noted that “uncertainty remains regarding future trade restrictions and global trade flows.”
“As a reference, we expect tariffs on Chinese exports to major markets to remain elevated compared to earlier in the year,” Moody’s added.
Key Questions and Answers
- What is Moody’s current outlook on China? Moody’s has maintained its negative outlook on China, citing concerns that ongoing trade tensions with major partners could negatively impact China’s credit profile.
- What changed in Moody’s drivers of the negative outlook for China? The drivers have evolved from worries about local government debt and the health of state-owned enterprises to a more subdued risk environment following coordinated government policies.
- How has Fitch rated China recently? In April, Fitch downgraded China’s sovereign credit rating to A from A+, citing rapidly increasing debt and deteriorating public finances.
- Why are investors closely watching China’s economic health? Following US President Donald Trump’s imposition of tariffs on China, investors are keen to see how credit rating agencies and financial institutions assess the health of China’s economy amidst persisting trade tensions and uncertainty.
- What did Moody’s say about future trade restrictions and global trade flows? Despite an early trade truce between China and the US, Moody’s highlighted that uncertainty remains regarding future trade restrictions and global trade flows, expecting tariffs on Chinese exports to major markets to remain elevated compared to earlier in the year.
