Moody’s Investors Service lowered its outlook for Chinese sovereign bonds to negative amid growing concerns over the country’s rising debt level.
Moody’s scaled down its outlook to negative from stable while retaining a long-term rating of A1 on China’s sovereign bonds, as the high fiscal expenditure to support local governments and state-owned companies is posing downside risks to the nation’s economy, the rating agency said.
The Chinese government has been taking recourse to increased borrowing in order to increase its fiscal stimulus to rev up a slowing economy.
The government’s fiscal deficit has risen to a record high and is currently hovering at 3.8 per cent GDP for the current year, up from 3 per cent in previous years, as the government issued more bonds to raise funds to boost the economy.
The GDP growth of the communist country has slowed down after a massive crash in the real estate sector.
“Considering the policy challenge posed by local government debt, the central government is focused on preventing financial instability and likely has detailed insights in the financial health of local-government financing vehicles.
“Still, maintaining financial market stability while avoiding moral hazard and containing fiscal costs of support, is very challenging,” according to a Moody’s statement.
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