Moody’s Cuts China Credit Outlook, then cuts outlook on Hong Kong, on Chinese banks, etc. etc.,

Economy
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Bloomberg

Moody’s Cuts China Credit Outlook to Negative on Rising Debt

China stepped up usage of fiscal stimulus to aid growth
Such move put downside risks to nation’s economy: Moody’s

By Bloomberg News
December 5, 2023

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 A1 on the nation’s sovereign bonds, according to a statement. China’s usage of fiscal stimulus to support local governments and its spiraling property downturn is posing risks to the nation’s economy, the grader said. . . . .

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Then, the next day, Moody’s also cut the credit outlook for Hong Kong, and for eight major Chinese banks, and for 22 (26 by a different count) Chinese local government investment vehicles such as the “Tianjin Infrastructure Investment Group”

CNBC

Moody’s cuts outlook for eight China banks on potential credit quality decline; downgrades Hong Kong too

PUBLISHED THU, DEC 7 2023

  • Moody’s Investors Service cut its outlook for eight Chinese banks to negative from stable.
  • This comes a day after it downgrades China’s credit ratings.
  • The ratings agency also lowered Hong Kong’s outlook from stable to negative, citing its linkages with mainland China.
  • Moody’s also slashed its outlook for 22 Chinese local government financing vehicles.

Moody’s Investors Service cut its outlook for eight Chinese banks to negative from stable on Wednesday, following an identical downgrade to China’s government credit ratings a day earlier.

The ratings agency also lowered Hong Kong’s outlook from stable to negative, citing tight political, institutional, economic and financial linkages between Hong Kong and mainland China. . . .

Moody’s also slashed its outlook for 22 Chinese local government financing vehicles to negative from stable.

LGFVs are companies set up by local governments to invest in infrastructure and social-welfare projects. . . .

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https://www.bloomberg.com/news/articles/2023-12-05/moody-s-cuts-china-credit-outlook-to-negative-on-rising-debt

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So a few weeks ago, Chinese bonds were rated by Moody’s as A1 (investment grade, not junk, albeit at the low-end of the investment grade spectrum.)

Today that rating is the same.
The actual rating has not changed.
What has changed is the outlook. like when a teacher sends a note home to your parents saying “you might not get an ‘A’ on your report card next time.”

This is similar to to moves made a month ago by Moody’s and by Fitch in regards to the US credit rating. (US was rated AAA before and AAA after the change in outlook.)

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In the past month or so both of the world’s two largest economies have been moved to negative credit outlooks.
Together the two countries constitute ~40% of world GDP.
Let that sink in a bit.