Moody's has upheld China's A1 long-term issuer and senior unsecured ratings for both local and foreign currencies while revising the outlook from negative to stable.
The rating agency said the move to a stable outlook reflects its view that China's economic and fiscal fundamentals will remain resilient in the face of persistent domestic, trade and geopolitical headwinds.
In its assessment, Moody's expects real gross domestic product to expand by 4.5% in 2026 and by 4.2% in 2027. The agency highlighted Chinese export competitiveness and the economy's capacity to withstand rapid shifts in the global trade environment as reasons it anticipates only a gradual slowdown in growth over the medium term, even as export growth moderates.
Moody's also underscored the role of government policy in supporting longer-term economic performance. It said policymakers are prioritizing investment in higher-productivity sectors while taking measures to manage supply imbalances, actions the agency believes will raise capital efficiency.
On fiscal and public debt dynamics, Moody's expects that authorities will conduct the debt resolution process for regional and local governments in a managed, controlled manner, despite an overall increase in general government debt. The agency projects government debt to rise to 82.4% of GDP in 2027 from 68.5% in 2025, and to exceed 90% by the end of the decade. This trajectory, Moody's said, reflects continued fiscal support to the economy and an assumption that some local government debt will be addressed through debt swaps to stabilize regional and local liquidity risks.
Low interest rates, supported by large domestic savings, are expected to limit the cost of servicing that higher debt burden. Moody's noted that China's largely closed and predominantly state-owned financial system supplies substantial captive demand for government securities, helping contain financing pressures.
The affirmation takes into account China’s sizeable and diversified economy and its growing strength in innovation and higher value-added industries. Moody's sees these strengths as partly offsetting challenges associated with an aging population.
Moody's left unchanged the country ceilings for China: local-currency country ceiling at Aaa and foreign-currency country ceiling at Aa1.
Context and implications
- Moody's assessment balances China’s economic diversification and increasing competitiveness in advanced sectors against demographic pressures and rising public debt.
- Projected increases in government debt are linked to ongoing fiscal support and measures to shore up local government liquidity, including assumed debt swaps.
- Low interest rates and substantial domestic savings, combined with a state-oriented financial system, are seen as mitigating factors for debt servicing costs.