China’s rising debt prompts Moody’s to cut its credit outlook

Moody’s, the credit rating agency, said on Tuesday it had issued a negative outlook for the Chinese government’s financial health.

In lowering its outlook to stable, Moody’s expressed concern about the potential cost to the national government of bailing out debt-ridden regional and local governments and state-owned enterprises. Moody’s warned that China’s economy appears to be settling into slower growth while the country’s huge real estate sector has begun to contract.

China’s Ministry of Finance immediately expressed disappointment, saying that the Chinese economy is resilient and that local government budgets could withstand the loss of revenue due to the country’s housing crisis.

Moody’s reaffirmed the A1 overall credit rating for the Chinese government. A negative outlook on a credit rating is not necessarily followed by a downgrade in the following months, but it serves as a warning that the existing rating may not be sustainable.