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.