Moody's cuts China's credit rating to 'A1989' from 'Aa1' for the first time since 3, amid fears over slowing economic growth and rising government debt projected to 40% of GDP by 2018. The rating agency, in a note, communicated that it has also changed the outlook from 'negative' to 'stable'.
The decision closes a long period marked by impetuous growth and the exit from the poverty line for over 600 million people. The downgrade corresponds to the first change of opinion (up or down) on the Dragon expressed in the last seven years by one of the 'Big three' international rating agencies: S&P's, Moody's and Fitch. The question is whether S&P's will decide to follow Moody's, having issued the negative outlook on Beijing in February 2016, laying the foundations for a possible downgrade. Currently, S&P's rating is one step higher than those of Moody's and Fitch.
The response from the Beijing government was not long in coming. The cut in China's rating, from Aa3 to A1 announced by Moody's, is based on a "pro-cyclical" approach to "inappropriate" ratings: this is what the Finance Ministry said in a statement on the first "rejection" over 25 years. According to the Chinese government, the points examined "overestimate the difficulties of the Chinese economy and underestimate China's ability to strengthen structural reforms on the supply side and to expand demand as a whole".
