Moody’s Investors Service lowered its outlook for China’s credit rating to stable from positive, saying the nation has made less progress than anticipated in reducing risks from local-government debt and credit expansion.
“Structural reforms under the new leadership” may not be sufficient over the next 12 to 18 months to justify an upgrade, Moody’s said yesterday in a statement from Singapore as it affirmed China’s “Aa3” rating, the fourth-highest level.
The comments add to concerns that risks are building up that may harm growth in the world’s second-largest economy after expansion unexpectedly slowed to 7.7 percent in the first quarter.
Fitch Ratings Ltd last week cut its long-term local-currency debt rating on the country, citing dangers to financial stability.
“Effective macro-prudential regulation of the financial system and the advancement of a broad range of reforms will likely be necessary to prevent the buildup of imbalances which could increase the risks of a hard landing for the economy,” Moody’s said.
China’s economy is likely to expand by between 7.5 percent and 8 percent this year and next year, and by 6 percent to 7 percent for the rest of the decade, supported by urbanization and productivity gains, Moody’s said.
At the same time, official figures may not “represent the full extent” of risks from local-government financing vehicles, while “elevated growth in credit,” increasingly driven by so-called “shadow banking,” is a risk to the economy, Moody’s said.
Policy-reform guidelines announced by the government “lack specific detail, and there is no clear indication when such measures will be implemented and when they would gain traction in producing systemic changes,” Moody’s said.
The agency last changed its credit rating on China in November 2010, raising long-term ratings to “Aa3” from “A1.”
Standard & Poor’s has a “AA-” rating, the fourth-highest, while Fitch’s is “A+,” the fifth-highest.