China’s Rising Debt Spurs Moody’s to Cut Credit Outlook

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

In dropping its outlook from stable, Moody’s expressed concern at the potential cost to the national government of bailing out debt-burdened regional and local governments and state-owned businesses. Moody’s warned that the Chinese economy seems to be settling into slower growth while the country’s enormous property sector has begun to shrink.

China’s Ministry of Finance immediately expressed disappointment, saying that the Chinese economy is resilient and that local government budgets could withstand their loss of revenue from the country’s real estate downturn.

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