Moody's cuts China credit outlook to negative on rising debt

Moody's Investors Service cut its outlook for Chinese sovereign bonds to negative, underscoring deepening global concerns about the level of debt in the world's second-largest economy.

Moody's lowered its outlook to negative from stable while retaining a long-term rating of Al on the nation's sovereign bonds, according to a statement on Dec 5.

China's use of fiscal stimulus to support local governments and its spiralling property downturn is posing risks to the nation's economy, the credit ratings agency said.

Beijing pushed back soon after the outlook change was announced, saying that it was "disappointed" with Moody's decision and that the nation's economy "will be highly resilient and has large potential".

The impact of the property downturn is well under control, the Finance Ministry said in a statement.

China also ramped up its support for the renminbi as market sentiment took a hit after Moody's action.

The People's Bank of China set the daily reference rate for the currency at 7.1140 per US dollar, versus an average estimate of 7.1486. The gap between the two was the largest in more than two weeks, a sign that Beijing is boosting its efforts to prevent declines in the Chinese currency.

"Policymakers just want to keep up with the same messaging of wanting a steady yuan and not let Moody's derail the policymakers' efforts," said OCBC Bank strategist Christopher Wong.

The market "can't rule out policymakers stepping in if there is excessive volatility in yuan", he added.