China Credit Outlook Cut to Negative By Moody’s

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

The rating body joined other rating organizations like Standard & Poor in warning rising local debt could add pressure to the country’s rating.

“While not our base case scenario, the government’s fiscal strength would be exposed to additional weakening if underlying growth, excluding policy-supported economic activity, remained weak,” Said Moody’s in a statement released during its outlook change on Wednesday.

“In such an environment, the liabilities of policy banks would likely increase to fund government-sponsored investment, while the leverage of state-owned enterprises (SOEs) — already under stress — would rise further.”

This week, the People’s Bank of China lowered reserve requirement ratios for lenders to five years low in order to spur an economy expanding at the slowest pace in years.

“Interventions in the equity and foreign exchange markets over the past year suggest that ensuring financial and economic stability is also an objective, but there is considerably uncertainty about policy priorities,” Moody’s reiterated.