On December 5, Moody's Ratings announced that it would revise the outlook of China's sovereign credit rating from "stable" to "negative", which sparked widespread attention and heated discussions. As one of the world's three major rating agencies, Moody's rating results have a high influence in the financial market, and many investment institutions will use their ratings as an important reference for decision-making.
This is not the first time Moody's has adjusted China's ratings, in fact, less than a month ago, Moody's revised the outlook for the U.S. sovereign credit rating from "stable" to "negative." The two ratings are for the world's largest and second largest economies, respectively, which cumulatively account for more than 40% of the world's GDP. This has also sparked speculation that Moody's is bearish on the global economy.
To be clear, however, Moody's rating adjustment does not represent an actual downgrade of its sovereign credit rating, but rather an adjustment to the outlook. To understand this distinction, we first need to understand the basic rules of ratings. Moody's has set up a total of 9 major ratings and 21 small ratings, with A1 being China's sovereign credit rating and the United States being the highest AAA.
In addition, it should be noted that Moody's rating criteria are mainly based on Western standards, and there may be some mismatches when evaluating China. Therefore, there is a reason why our current sovereign credit rating is rated A1.
In the report, Moody's cited three reasons for the downgrade of China's sovereign credit rating: slowing economic growth, local debt problems, and a recession in the real estate market.
First of all, in terms of economic growth, China's GDP growth rate reached 5.% year-on-year in the first three quarters2%, which is not only higher than the United States, but also far exceeds developed countries such as the European Union and Japan. Therefore, it may be biased to say that China's economic growth is slowing.
Second, the issue of local debt is also a focus of Moody's. Although the scale of local debt cannot be ignored, China** has taken active and effective efforts to reduce debt and strengthened regulatory measures. In addition, a lifelong accountability mechanism has been established to impose severe penalties for violations of laws and regulations. According to the data, the proportion of national debt plus local explicit debt in GDP is less than 60% of the warning line.
Finally, Moody's mentioned the impact of the recession in the housing market on income. It is true that the land use right transfer fee has declined due to the adjustment of the real estate industry, but this does not indicate the decline in the overall ** income. In fact, the loss of income is deducted from costs such as compensation for demolition, so the impact on net income is limited and controllable.
Based on these views, we can see that Moody's Ratings's argument for downgrading China's sovereign credit rating outlook is insufficient and biased.
In the face of the adjustment of Moody's rating, China's Ministry of Finance has responded in a timely manner and put forward a clear rebuttal. The Ministry of Finance pointed out that China's economic growth rate is still strong, the local debt problem has been properly handled, and the impact of the real estate market adjustment is controllable.
However, we still need to focus on the true intent of the rating agency's rating. It can be noted that after Moody's downgraded the outlook of the U.S. sovereign credit rating, Moody's has been criticized and pressured by the U.S. **. Therefore, in order to alleviate this pressure, Moody's may have adopted a check-and-balance strategy and revised China's sovereign credit rating outlook to "negative" as well, in order to show its objective judgment and impartial position on the global economy.
However, there is still some controversy over whether this adjustment is truly in line with China's specific situation and actual performance. On the one hand, China's economic growth is still relatively fast and has the potential for stable growth. On the other hand, Moody's ratings do not fully account for China's efforts to ramp up structural reforms and stabilize financial risks.
The true intent of Moody's ratings is worth pondering. Commercial institutions are bound to face various interests and political considerations in the rating process, and on the basis of a full understanding of this, we should be objective about the rating results and make our own decisions based on our own understanding and judgment of China's economy.
Finally, I would like to emphasize once again that this is just a personal opinion, and everyone is welcome to follow and like. Thank you for your support and encouragement to the original!