China Rating Outlook Cut to Negative by Moody’s

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Why Moody's Cut China's Rating Outlook

China’s credit-rating outlook was lowered to negative from stable by Moody’s Investors Service, which cited rising government debt, falling currency reserves and uncertainty over the authorities’ ability to carry out reforms.

The government’s fiscal strength is weakening and there’s a growing probability that it will need to shoulder some of the liabilities of local governments, policy banks and state-owned enterprises, the ratings company said in a statement published Wednesday. Declines in the nation’s foreign-exchange reserves amid capital outflows underscore policy, currency and growth risks, while failure to undertake reforms may undermine the credibility of policy makers, it said.

Moody’s joined Standard & Poor’s in warning rising local debt has the potential to add pressure to the country’s rating. The People’s Bank of China lowered lenders’ reserve-requirement ratios to the lowest in five years this week to bolster an economy expanding at the slowest pace in a quarter century. Banks extended record new loans in January.

Moody’s affirmed China’s long-term credit rating of Aa3, saying the country’s fiscal and foreign reserves remain "sizeable," giving the authorities time to implement some reforms and "gradually" address imbalances in the economy. That’s the fourth-highest ranking and puts the country on a par with Chile and Taiwan.

— With assistance by Helen Sun

(Corrects lead to show outlook cut.)
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