Moody’s reminds China’s pain will be widely shared

Moody’s Investors Service was something of a thorn in global policymakers’ sides in 2023. From Beijing to Washington, the ratings giant fired any number of shots across the bows of the biggest economies.

In mid-November, it lowered America’s credit outlook to “negative” from “stable”, pointing to political polarization in Congress as the US national debt topped US$34 trillion. Three weeks later, Moody’s cut its outlook for Chinese sovereign debt to “negative,” citing a slowing economy and a property sector crisis that Beijing has been slow to address.

Now, Moody’s is reminding Asia of the economic trauma 2024 may have in store as China’s slowdown imperils sovereign creditworthiness across the region.

Moody’s thinks the fallout from China’s property troubles on business and household confidence makes hopes for 5% economic growth in 2024 overly optimistic. It sees mainland gross domestic product (GDP) slowing to 4% this year and next.

For an economy at China’s level of development, such a downshift from the 6% growth averaged from 2014 to 2023 will set back living standards. And it will exacerbate the debt troubles Moody’s flagged last month, both among developers and local governments around the nation. It also may spark legitimacy problems for Xi Jinping’s Communist Party.

China’s slowdown “significantly influences” regional economic trajectories via supply chains, Moody’s says. “As these economies’ respective manufacturing bases are smaller in scale and less developed than China’s, the latter will remain at the center of many of the region’s supply chains and an important source of final demand in the near term.”

True, Moody’s argues that “against this backdrop, we expect companies to continue to diversify supply chains