China’s credit rating has been cut over fears that growth in the world’s second-biggest economy will slow in the coming years, BBC reports. Moody’s, one of the world’s big three ratings agencies, cut China by one notch to A1 from Aa3.
It was the first time the agency has downgraded the country since 1989. China’s finance ministry said Moody’s was exaggerating the mainland’s economic difficulties and underestimating reform efforts.
The downgrade could raise the cost of borrowing for the Chinese government. The ratings agency also changed its outlook for China to stable from negative.
Moody’s said that the downgrade reflected expectations that China’s financial strength would “erode somewhat over the coming years, with the economy-wide debt continuing to rise as potential growth slows”.
The other two main credit rating agencies have so far left their evaluations unchanged. Standard & Poor’s rating for China currently stands at AA- with a negative outlook, while Fitch’s rating is A+ with a stable outlook.
The Chinese economy expanded by 6.7% in 2016 compared with 6.9% the previous year, the slowest growth since 1990. China is the world’s second-biggest importer of both goods and services.
It also plays an important role as a buyer of oil and other commodities, and its slowdown has been a factor in the decline in the prices of such goods.
Beijing’s aim to rebalance the economy towards domestic consumption has led to major challenges for manufacturers, and there have been layoffs – especially in heavily staffed state-run sectors such as the steel industry.
The downgrade comes as Beijing tries to clean up its lending practices, which have been viewed as a threat to financial stability.