On the 5th, Moody's downgraded the outlook of China's sovereign credit rating from stable to "negative".
The adjustment did not change China's sovereign credit rating, but only changed the outlook. However, it still caused heated discussions in China, and the confidence of the capital market was also affected, so A-shares appeared, falling below 3,000 points again.
So how should we look at this rationally?Is China's economy really going terribly wrong, as Moody's predicted?
Reasons for the downward adjustment
It is worth mentioning that whether it is the adjustment of the U.S. policy towards China that began in 2018 or the new crown epidemic that began in 2019, Moody's has not downgraded the outlook of China's sovereign credit rating in these events that have had a huge impact on China's economy. So why the sudden downward adjustment this time?The official reasons given by Moody's can be simply broken down into three points:
Economic growth slows in the medium term
The reason for this is irrefutable, after all, China has maintained a very high rate of development for nearly 30 years. At present, China is already the world's second largest economy, and elephants are difficult to dance, and it is impossible for such a volume to continue to maintain the same rapid growth as in the past. However, the current slowdown in economic growth is a global problem, whether it is China, Europe, the United States, Japan and South Korea, and even developing countries such as India and Southeast Asia.
With economic growth slowing down and a lack of new economic flashpoints, the global economy is no longer a question of who can run faster, but who is more stable and less wrong.
The risk of a major correction in the real estate sector
Regarding the adjustment of the real estate industry, it can only be said that Moody's is a bit of an afterthought, simply put, it is the "thunder" of real estate, and China has already dismantled half of it, and it has only reacted there.
It has to be said here that although the state's control over the economy restricts economic vitality to a certain extent, it has incomparable advantages in curbing risks and resolving systemic crises. The adjustment of the real estate industry has been planned in China since 2017. A series of combinations such as shrinking lending, housing not speculation, restricting local basic investment, and real estate management and control have been effectively lifted by exchanging time for space.
Now, banks, real estate companies, downstream enterprises and even ordinary consumers have gradually recognized the reality, and the era of high housing prices in the past has passed, and the market has gradually returned to rationality. Housing prices are slow**, the market takes time to digest various problems, there is no longer a systemic risk, and the so-called major correction (perhaps implying that housing prices are general**) is no longer possible.
3.There are uncertainties in the regulation of private enterprises
In recent years, rumors of the so-called "national advance and people retreat" have been heard endlessly, and there have been many discussions in the market. Even, after the war and the epidemic, a large number of small and medium-sized business owners and middle-class groups are keen on "run" learning, and it seems that if they are one step late, they will be liquidated.
This can only be said to be a miscalculation of Moody's determination to open up China's policy.
On July 19, 2023, the "Opinions of the Communist Party of China on Promoting the Development and Growth of the Private Economy" was released. With a clear signal, it responds to various discussions, and helps private business owners strengthen their confidence in investment.
In the supervision of private enterprises, the opinions at the national level are very clear, and the private economy is an important supplement to the economy with Chinese characteristics and an important support for enhancing economic vitality. Not only will it not restrict the development of private enterprises, but on the contrary, policies have been introduced in terms of administrative supervision and financial support to tilt resources to small and micro enterprises and support the development of private enterprises.
How to view Moody's downgrade
First of all, we must make it clear that Moody's is a top international rating agency, known as the world's three major rating agencies along with Fitch and Standard & Poor's, and belongs to the oligopoly level in the field of credit rating, and has deep influence and appeal on financial investment institutions and individuals around the world. Therefore, we cannot underestimate Moody's, and we cannot but be wary of organizations, enterprises or individuals who follow Moody's bearish on China, they have huge energy in the global capital market, and once they are not properly dealt with, it will have an adverse impact on China's foreign investment, exchange rate and foreign trade.
But at the same time, we must also understand that Moody's is an American company, and the capitalists may not be loyal to their own country, but multinational companies, as vested interests, must be loyal to the international economic system dominated by the United States. As the "dark horse" of the current global economic order, China has impacted the minds of too many people and the economic order of the past. Moody's downgrade of China's outlook is more of a helpless move to limit China in the face of global economic difficulties, when Moody's has already downgraded the outlook for the United States. - Europeans and Americans are not willing to admit that when the global economy is in trouble, the Chinese can stand out!
As we can see, Moody's subsequently downgraded the rating outlook of Hong Kong and Macau, downgraded the rating outlook of eight major banks including industry, agriculture, China and construction, downgraded the outlook of 10 Chinese insurance companies including PICC, CPIC and China Life to negative, and downgraded the rating outlook of 115 Chinese enterprises (including some central enterprises, including leading private enterprises such as Tencent and Alibaba). No pretend, a showdown, and a comprehensive smear of all aspects of China.
Only by responding positively and positively, speaking with ironclad facts, and speaking with China's steady economic and social development, can all bearish voices be smashed. Just as the "China collapse theory" that began to prevail 30 years ago has never stopped, but China has been developing. We may not be able to refute the "China collapse theory" in words, but we can create more voices with development, for example, the "threat theory" that has been so popular in recent years has become popular in the United States, and instead of collapsing, we have become the most important competitor in the hearts of Americans.
Of course, peace and development are the main theme, and we welcome rational and well-intentioned criticism, but we should be more soberly aware that China has embarked on an economic development path that is very different from history and Europe and the United StatesWe'll see.