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Moody's Confirms China's Rating At "A1," Outlook Stable

Moody's Confirms China's Rating At "A1," Outlook Stable

The international rating Agency Moody's confirmed the long-term rating of China's Issuer in foreign and national currencies at the level of "A1," the outlook for the rating is stable, the rating agency said in a statement.

"The confirmation of the A1 rating and stable outlook are supported by Moody's assessment, according to which the stability of China's institutions and governance, and in particular the effectiveness of the public policy, supports the state's ability to reduce solvency risks arising from the growth of public sector debt...," the Agency said in a statement.

Moody's forecasts that China's economy will grow by just 1.9% this year and growth will accelerate to 7% in 2021, with the recovery largely driven by the public sector, at least initially.

The Agency notes that it may raise China's rating if it becomes more likely that structural reforms will lead to a reduction in the country's public sector debt.

"Conversely, negative pressure on the rating may be caused by signs that the government's medium-term growth goals will either not be met, or will be achieved through further significant increases in debt, which will exacerbate economic distortions and increase risks to financial stability," the Agency concludes.

Moody's Investors Service says in a new report that although growth has returned to most of China's (A1 stable) regional and local governments (RLGs), recovery from the coronavirus shock will be gradual and uneven across the provinces this year.

Although China's national GDP growth rebounded to 3.2% in the second quarter of 2020 following a decline of 6.8% in the first quarter, revenue growth remains under pressure. The pandemic-driven slowdown in economic growth, along with centrally mandated tax reductions to support the economy, led to a 7.9% decline in RLGs' general budgetary revenue in the first half of 2020. While this improved to positive growth in June, Moody's expects RLGs will not meet the year's official growth target of negative 3.5% if the momentum of restorative growth is not sustained.

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