The bad news is piling up for the Middle Kingdom. The rating agency Moody’s lowered the outlook for China’s rating from “stable” to “negative” on Tuesday, December 5, due to the debt in the world’s second largest economy. “The decision to change the outlook to negative reflects growing evidence that the government and public sector […] “will provide financial support to regional governments and state-owned enterprises in financial difficulty,” says Moody’s.
This “poses vast risks […] for the budgetary solidity” of China, notes Moody’s in a press release, due to “weaker” economic growth of the Asian giant and the difficulties of the real estate sector. In the wake of this report, the Chinese Ministry of Finance is said to be “disappointed” by Moody’s decision.
The real estate crisis
Real estate has long represented a quarter of China’s gross domestic product (GDP), and supports thousands of businesses and low-skilled employees. The sector has experienced dazzling growth for two decades, but the financial setbacks of emblematic real estate groups (Evergrande, Country Garden, etc.) are now fueling buyer mistrust, against a backdrop of unfinished housing and falling prices per square meter.
To revive real estate and stimulate activity, the government has increased support measures for the sector in recent months. But the results remain inconclusive. The real estate crisis is a major obstacle to economic recovery.
It weighs on the country’s ability to achieve its growth objective for 2023, set by the government at “around 5%”.