Ratings agency Moody’s Investors Service on Tuesday last week cut its outlook for China’s credit rating to “negative” from “stable,” citing risks from a slowing economy, increasing local government debts and a continued slump in the Chinese property market. Wasting little time, the agency on Wednesday also downgraded its credit outlooks for Hong Kong and Macau to “negative” from “stable,” citing the territories’ tight political, institutional, economic and financial linkages with China.
While Moody’s reaffirmed its “A1” sovereign rating for China, the outlook downgrade was its first for the country since 2017, reflecting the agency’s pessimistic view of China’s mounting debts and the effects on its economic prospects.
Moody’s lowered its economic growth forecasts of the world’s second-largest economy for next year and 2025 to 4 percent, compared with the Chinese government’s annual growth target of about 5 percent for this year. The agency also put its average growth estimate for China at about 3.8 percent by 2030, implying a similarly pessimistic outlook for the Chinese economy in the long term.
The assessment was consistent with Moody’s previous credit risk judgements and followed the same treatment it gave the US on Nov. 10. At that time, Moody’s lowered its outlook on the US’ credit rating to “negative” from “stable,” citing the continuous accumulation of US federal debts and a decline in Washington’s stability of debt repayment amid growing political polarization.
Moody’s shift in stance on China’s credit outlook has much to do with the country’s real-estate problems, which have not only triggered debt defaults by major property developers including Evergrande Group and Country Garden Holdings Co, but also delivered knock-on effects on local government debts and the national economy as a whole. On Sept. 14, the agency revised its outlook for China’s property sector to “negative” from “stable” and said it expected the market’s downside to continue over the next six to 12 months.
Fitch Ratings and S&P have not adjusted their credit outlooks for China yet, but they have issued warnings on the rising risks associated with the nation’s property market and are not optimistic about the economy’s growth momentum. That is because the property sector and related industries make up a quarter of China’s economic activity, they said.
Fitch last month forecast an up to 5 percent decline in China’s new home sales next year following an estimated contraction of 10 to 15 percent this year, amid sustained declines in transaction volumes and re-emerging pressure on home prices, while S&P on Oct. 24 said that in its worst-case scenario, China’s real GDP growth could drop to 2.9 percent next year if the property slump worsens.
In other words, the three major agencies all have similar views on China’s economic growth and property market trends, and they only differ on how badly the property woes could evolve to affect other key business sectors including capital goods, consumer products and banks, and China’s overall economy.
Given that Taiwanese banks and insurance companies have continued to slash their exposure to China to the lowest level in at least a decade, the Financial Supervisory Commission last week said the Moody’s downgrade had little effect on Taiwanese banks and insurers, as it claimed a combined exposure of NT$23.6 billion (US$752.22 million) to Chinese bonds as of the end of last month.
However, local financial institutions still have to pay extra attention to China’s property crisis and its local government debt problem, which are not likely to be solved in the short term. Instead, they need to be improved through structural reforms in the long term. It also requires Beijing to adopt broader macroeconomic policies to promote sustained economic growth.
What began on Feb. 28 as a military campaign against Iran quickly became the largest energy-supply disruption in modern times. Unlike the oil crises of the 1970s, which stemmed from producer-led embargoes, US President Donald Trump is the first leader in modern history to trigger a cascading global energy crisis through direct military action. In the process, Trump has also laid bare Taiwan’s strategic and economic fragilities, offering Beijing a real-time tutorial in how to exploit them. Repairing the damage to Persian Gulf oil and gas infrastructure could take years, suggesting that elevated energy prices are likely to persist. But the most
In late January, Taiwan’s first indigenous submarine, the Hai Kun (海鯤, or Narwhal), completed its first submerged dive, reaching a depth of roughly 50m during trials in the waters off Kaohsiung. By March, it had managed a fifth dive, still well short of the deep-water and endurance tests required before the navy could accept the vessel. The original delivery deadline of November last year passed months ago. CSBC Corp, Taiwan, the lead contractor, now targets June and the Ministry of National Defense is levying daily penalties for every day the submarine remains unfinished. The Hai Kun was supposed to be
The Legislative Yuan on Friday held another cross-party caucus negotiation on a special act for bolstering national defense that the Executive Yuan had proposed last year. The party caucuses failed to reach a consensus on several key provisions, so the next session is scheduled for today, where many believe substantial progress would finally be made. The plan for an eight-year NT$1.25 trillion (US$39.59 billion) special defense budget was first proposed by the Cabinet in November last year, but the opposition Chinese Nationalist Party (KMT) and Taiwan People’s Party (TPP) lawmakers have continuously blocked it from being listed on the agenda for
On Tuesday last week, the Presidential Office announced, less than 24 hours before he was scheduled to depart, that President William Lai’s (賴清德) planned official trip to Eswatini, Taiwan’s sole diplomatic ally in Africa, had been delayed. It said that the three island nations of Seychelles, Mauritius and Madagascar had, without prior notice, revoked the charter plane’s overflight permits following “intense pressure” from China. Lai, in his capacity as the Republic of China’s (ROC) president, was to attend the 40th anniversary of King Mswati III’s accession. King Mswati visited Taiwan to attend Lai’s inauguration in 2024. This is the first
RSS