Moody's cuts China credit outlook, citing lower growth, property risks REUTERS 3:05 AM ET 12/5/2023 (Reuters) - Ratings agency Moody's cut its outlook on China's government credit ratings to negative from stable on Tuesday, in the latest sign of mounting global concern over the impact of surging local government debt and a deepening property crisis on the world's second-largest economy. The downgrade reflects growing evidence that authorities will have to provide more financial support for debt-laden local governments and state firms, posing broad risks to China's fiscal, economic and institutional strength, Moody's said in a statement. "The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector," Moody's said. China's blue-chip stocks slumped to nearly five-year lows on Tuesday amid worries about the country's growth, with talk of a possible cut by Moody's denting sentiment during the session, while Hong Kong stocks extended losses. China's major state-owned banks, which had been seen supporting the yuan currency all day, stepped up U.S. dollar selling very forcefully after the Moody's statement, one source with knowledge of the matter said. The yuan was little changed by late afternoon. The cost of insuring China's sovereign debt against a default rose to its highest since mid-November. "Now the markets are more concerned with the property crisis and weak growth, rather than the immediate sovereign debt risk," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. U.S.-listed shares of Chinese companies fell, with Baidu(BIDU) off 0.5%, Alibaba Group Holding(BABA) down 1.1%, and JD.com(JD) dropping 1.9%. The move by Moody's was the first change on its China view since it cut its rating by one notch to A1 in 2017, also citing expectations of slowing growth and rising debt. While Moody's affirmed China's A1 long-term local and foreign-currency issuer ratings on Tuesday -- saying the economy still has a high shock-absorption capacity -- it said it expects the country's annual GDP growth to slow to 4.0% in 2024 and 2025, and to average 3.8% from 2026 to 2030. Moody's outlook downgrade comes ahead of the annual agenda-setting Central Economic Work Conference, which is expected around mid-December, with government advisers calling for a steady growth target for 2024 and more stimulus. Analysts say the A1 rating is high enough in investment-grade territory that a downgrade is unlikely to trigger forced selling by global funds. The other two major rating agencies, Fitch and Standard & Poor's, rate China A+, which is equivalent to Moody's. Both have a stable outlook. China's Finance Ministry said it was disappointed by Moody's decision, adding that the economy will maintain its rebound and positive trend. It also said property and local government risks are controllable. "Moody's concerns about China's economic growth prospects, fiscal sustainability and other aspects are unnecessary," the ministry said. STRUGGLING FOR TRACTION Most analysts believe China's growth is on track to hit the government's target of around 5% this year, but that compares with a COVID-weakened 2022 and activity is highly uneven. The economy has struggled to mount a strong post-pandemic recovery as the deepening crisis in the housing market, local government debt concerns, slowing global growth and geopolitical tensions have dented momentum. A flurry of policy support measures have proven only modestly beneficial, raising pressure on authorities to roll out more stimulus. "We spent the better part of three years watching China have this sort of off-and-on reopening from the pandemic, and this was the year they finally sort of officially reopened," said Art Hogan, chief market strategist at B Riley Wealth in New York. "But the pace at which the economy has recovered from that has been disappointing." Analysts widely agree that China's growth is downshifting from breakneck expansion in the past few decades. Many believe Beijing needs to transform its economic model from an over-reliance on debt-fuelled investment to one driven more by consumer demand. Last week, China's central bank head Pan Gongsheng pledged to keep monetary policy accommodative to support the economy, but also urged structural reforms to reduce a reliance on infrastructure and property for growth. DEEPER IN DEBT After years of over-investment, plummeting returns from land sales, and soaring costs to battle COVID, economists say debt-laden municipalities now represent a major risk to the economy. Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China's economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund (IMF). In October, China unveiled a plan to issue 1 trillion yuan ($139.84 billion) in sovereign bonds by the end of the year to help kick-start activity, raising the 2023 budget deficit target to 3.8% of gross domestic product (GDP) from the original 3%. The central bank has also implemented modest interest rate cuts and pumped more cash into the economy in recent months. Nevertheless, foreign investors have been sour on China almost all year. Capital outflows from China rose sharply to $75 billion in September, the biggest monthly figure since 2016, according to Goldman Sachs.
Ohhh wowwww another moodys downgrade? This time on China? Uh oh.... Doesn't matter what they say, America is 33 trillion in debt and even with that staggering statistic wallstreet Doesn't care. Moodys cam downgrade the entire world's credit outlook and it still wouldn't make a difference!!!
Moody’s is trying to front run everyone else on this front but China sovereign has s*t load of cash and keeps piling. The locals, on the other hand, are much noting. But Moody’s doesn’t rate those of course.
A real-estate implosion could really muck the waters. Worse than ours in 2008 as their bubble is (allegedly) much bigger.
on the second point, everyone anti-china hoping and cheering if it came true. but no, check out arthur kroeber’s observations regarding the situation. my personal opinion is that xi will let these overleveraged firms died so the rest of private developers will fall inline. chinese real estate market is one of the freest sector. the government holds the land leases, but other than that, private firms can build whatever as long as they can borrow from the banks. their banking sector however is not very much tied up with real estate per se. banks collect mortgage payments in full as soon as the apartment is sold even before the delivery. this rule will soon change after the current mess they are in. bank lendings are also collateralized by the land value set by the government, so they won’t go under. few names such as evergrande defaulted their senior unsecured notes, but one thing about these senior notes are based on corporate credits, not collaterals. so their demise won’t affect home value. but it does put a pressure on the unfinished and unsold units, much like in 2008. the creditors will find out the firms ran out of liquidity and will get nothing.
Good news. Because of the property crisis, there are trading opportunities. So what to trade? trade Hangseng Futures, China A50 ...
At least complete morons like you on here make it easy to block so I only have to read the useless drivel from your retard brain once. Commercial real estate in the US is in huge trouble and so is the housing market in China. Obviously. Jeff Gundlach gives the best advice that these things always take WAY longer to play out than anyone ever expects. In these two cases it will still take years and years to play out. I don't expect a 2008 style crash in either of these two markets but a decade long oscillation between first gear and stalling out. Tons of government liquidity pumping to cause a crash not to happen that finds its way into other markets.
Are you sure about that? The office REIT sub-sector is up nearly 20% in a month. Industrial is up 13% and retail is up 11%. That said, office REIT's are still down about 8% on the year. Granted, what Wall Street chases and the reality of what is really going on is oft times quite different. It does seem to be picking up however. Retail and office at least. Data centers and warehouses have slowed a little., but their sectors are still up some.
Some more Evergrande information... Chinese Developer Evergrande Risks Liquidation if Creditors Veto Debt Plan https://www.voanews.com/a/chinese-d...tion-if-creditors-veto-debt-plan/7382628.html
not yet, until the external demands recover, i.e., end of the war in europe at least. the europeans have no money to spend.