Ratings agency Moody’s have downgraded China’s credit score for the first time in nearly 30 years, in the latest sign that the world’s second largest economy is facing difficulties.
Moody’s brought down China’s long-term local currency and foreign currency issuer ratings by one level to A1 from Aa3, saying that it expects the financial strength of the economy to erode in coming years as growth continues to slow.
In a statement, the agency said: “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows.”
The Chinese economy has seen growth estimates slow for the last couple of years, expanding by 6.7 percent in 2016 compared with 6.9 percent the previous year, the slowest growth since 1990.
The Chinese finance ministry said Moody’s had exaggerated the economic situation in China, and was based on “inappropriate methodology”.
“Moody’s views that China’s non-financial debt will rise rapidly and the government would continue to maintain growth via stimulus measures are exaggerating difficulties facing the Chinese economy, and underestimating the Chinese government’s ability to deepen supply-side structural reform and appropriately expand aggregate demand,” the ministry said in a statement.
Nonetheless, China’s leaders have identified the financial risks to the country and asset bubbles as a top priority this year, raising short-term interest rates and tightening regulatory supervision in a bid to boost growth and reign in an economic slowdown.