SHANGHAI — Moody’s Investors Service cut China’s sovereign credit rating for the first time in nearly three decades, citing expectations that the country’s financial strength will deteriorate in the coming years as debt keeps rising and the economy slows.

In a Wednesday statement, Moody’s said it downgraded China’s rating to A1 from Aa3, while changing its outlook to stable from negative. In March of last year, it cut China’s outlook to negative from stable. Moody’s last cut its China credit rating in November 1989, not long after the bloody crackdown on mass protests in Beijing’s Tiananmen Square rocked the nation. Moody’s now rates China’s credit alongside that of countries such as Japan, Saudi Arabia and Israel.

The news triggered an early selloff in Chinese stocks, with shares in Shanghai SHCOMP, -0.50% falling more than 1% before recovering, in addition to modest losses for the Chinese currency in the freely traded offshore market. The impact on the heavily-controlled domestic currency and bond markets was muted.

The move comes as Beijing has intensified a campaign in recent months to rein in risky investment and financing practices that pose a serious threat to the stability of the world’s second-largest economy. The People’s Bank of China has raised a suite of key short-term interest rates twice since early February, while the banking regulator cracked down on investment products with highly leveraged bets in capital markets.

“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” Moody’s said in the statement.

An expanded version of this report is available at WSJ.com

Men punished with lashings for same-sex relations in Indonesia </s> MOSCOW (Sputnik) — Moody’s Investors Service has downgraded China’s credit rating to A1 from the previous Aa3 level, changing the outlook from negative to stable, a press release of the Service said on Wednesday.

"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," the release said, adding that the stable outlook reflects the assessment of the risks as "balanced" at the A1 rating level.

"Economy-wide debt of the government, households and non-financial corporates will continue to rise, from 256% of GDP at the end of last year," the release added.

According to the release, the outlook was changed from negative to stable due to the assessment that China’s government will manage to "maintain economic, financial and social stability in the near term" due to the fact that the government controls parts of the economy and financial system.

China's economy has recently been experienced significant turmoil, with growth rates at record lows, an increasingly volatile stock market and the yuan sliding against other currencies. According to the official data, the country’s GDP increase in 2016 made 6.7 percent, which is the lowest in 26 years. </s> Moody’s Investors Services downgraded China’s long-term local and foreign currency issuer ratings on Wednesday, citing expectations that the financial strength of the world’s second-biggest economy would erode in the coming years. The downgrade by one notch to an A1 rating from Aa3 comes as the Chinese government grapples with the challenges of slowing economic growth and rising financial risks stemming from soaring debt.

“The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” Moody’s said in a statement. “While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” it said.

The ratings agency also changed its outlook for China to stable from negative. China’s top leadership has identified the containment of financial risks and asset bubbles as a top priority this year. All the same, authorities have moved cautiously to avoid knocking economic growth, gingerly raising short-term interest rates. While the downgrade is likely to modestly increase the cost of borrowing for the Chinese government and its state-owned enterprises, it remains comfortably within the investment grade rating range.

China’s Shanghai Composite index fell more than 1 percent in early trade, while the yuan currency in the offshore market briefly dipped nearly 0.1 percent against the U.S. dollar after the ratings agency announced its decision. The Australian dollar, often see as a liquid proxy for China risk, also slipped. “It’s quite clear that it’s going to be quite negative in terms of sentiment, particularly at a time when China is looking to derisk the banking system, as well as at a time when there’s going to be some potential restructuring of SOEs,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank’s Treasury division.

In March 2016, Moody’s cut its outlook on China’s government credit ratings to negative from stable, citing rising debt and uncertainty about the authorities’ ability to carry out reforms and address economic imbalances. Rival ratings agency Standard & Poor’s downgraded its outlook to negative in the same month. S&P’s AA- rating is one notch above both Moody’s and Fitch Ratings’ A+ rating. Moody’s said its now stable outlook reflected the assessment that risks were balanced. China’s potential gross domestic product growth was likely to slow towards 5 percent in the coming years, but the slowdown is likely to be gradual due to expected fiscal stimulus, it said.

Authorities have stepped up efforts over the last several months to curb debt and housing risks, and a raft of recent data has signaled a cooling in the economy, which grew a solid 6.9 percent in the first quarter. Government-led stimulus has been a major driver of economic growth over recent years, but the pump-priming has also been accompanied by runaway credit growth and has created a mountain of debt – now standing at nearly 300 percent of GDP.

Moody’s said it expects the government’s direct debt burden to rise gradually towards 40 percent of GDP by 2018 “and closer to 45 percent by the end of the decade”. Economy-wide debt of the government, households and non-financial corporates would also continue to rise, it said. “Taken together, we expect direct government, indirect and economy-wide debt to continue to rise, signaling an erosion of China’s credit profile which is best reflected now in an A1 rating,” it said.

For all the latest India News, download Indian Express App now </s> Moody's Investor Services has downgraded China's credit rating for the first time in almost three decades.

The credit rating agency warned that the financial strength of the world's second-biggest economy is likely to deteriorate as growth slows and national debt climbs.

The cut to China's long-term local currency rating to A1 from Aa3 puts it on a par with the Czech Republic, Estonia, Israel, Japan and Saudi Arabia.

The last time Moody's downgraded China was in November 1989, a few months after a bloody Tiananmen Square protest crackdown.

"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," it said in a statement.

This is likely to make the economy more reliant on policy stimulus, which could exacerbate rising debt levels, it added.

Moody's also changed its China outlook to stable from negative, saying risks are "balanced" and the "erosion in China's credit profile will be gradual and, we expect, eventually contained as reforms deepen".

China grew 6.7 per cent last year, down from 6.9 per cent in 2015 - the slowest growth since 1990.

Moody's sees China's growth potentially declining to near 5 per cent over the next five years, even as the government's direct debt burden rises towards 40 per cent of gross domestic product by 2018 from about 14 per cent now.

The downgrade is likely to modestly lift borrowing costs for Beijing and its state-owned enterprises, but remains comfortably within the investment-grade rating range.

China's authorities dismissed the ratings cut, saying Moody's was exaggerating the country's economic difficulties and underestimating reform efforts.

Chinese policymakers have been making efforts to clean up lending practices, which have been viewed as a threat to financial stability.

The move brings Moody's in line with rival Fitch, which has had an equivalent A+ rating on China since November 2007. China's financial markets were shaken by the move but quickly brushed it off. Stocks, bonds and the currency were little changed.

The Shanghai Composite Index closed up 0.1 per cent, after slumping as much as 1.3 per cent earlier in the day.

United Overseas Bank economist Suan Teck Kin said Moody's view "appears to be overly pessimistic".

"Our projections show that China would still be able to maintain (a growth rate) of around 6 per cent by 2020," he noted.

"We see ample buffers from the central government and People's Bank of China to manage the economic and financial risks," Mr Suan added. </s> Elisabeth is a reporter for Verdict, covering global news, economics and business. You can reach her at elisabeth.perlman@verdict.co.uk

Moody’s, one of the world’s biggest bond credit rating service downgraded China’s credit ratings on Wednesday for the first time in nearly 30 years.

The move comes amid concerns that economic growth in the country will continue to slow in the coming years, while debt levels rise.

Moody’s said it expects the government’s direct debt burden to rise gradually toward 40 percent of GDP by 2018 “and closer to 45 percent by the end of the decade.”

The Chinese economy expanded by 6.7 percent in 2016 compared with 6.9 percent the previous year — the slowest growth since 1990.

China’s finance ministry said Moody’s was exaggerating the country’s economic difficulties as well as its ability to deepen reform and boost demand.

The ministry added that the decision to downgrade China’s credit rating was based on an “inappropriate method”.

However, Julian Evans-Pritchard, China economist at Capital Economics in Singapore, said measures to resolve the debt overhang, including debt-for-equity swaps at state companies, don’t go far enough.

It’s reached the point where the bad debt problem is just so large the government will have to step in to resolve it at some point, and that obviously means at some point a sizeable increase in government debt.

The other two main credit rating agencies — Standard & Poor’s and Fitch — have so far kept their ratings the same.

The former agency’s outlook for China is negative at AA-, and the latter’s outlook is stable at A+.

China’s president Xi Jinping will hope to secure a second five-year term at the Communist Party Congress later this year. </s> Our live blog is tracking market reaction after Moody's downgraded China's rating to A1 from Aa3 and changed its outlook to stable from negative.

We'll bring you the latest analysis below. </s> Moody's Investors Service on Wednesday downgraded China's credit rating to A1 from Aa3, changing its outlook to stable from negative, citing concerns efforts to support growth will spur debt growth across the economy.

Marie Diron, senior vice president for Moody's soverign rating group, told CNBC's "Street Signs" on Wednesday that the catalyst for the downgrade was a combination of factors, including expectations that potential growth would fall to 5 percent by the end of the decade. It was Moody's first downgrade for the country since 1989, according to Reuters.

"Official growth targets are also moving down, but probably more slowly. So the economy is increasingly reliant on policy stimulus," she said, adding that was likely to spur increasing debt levels for the government.

"It's really the size of the leverage, the trends in leverage as well as the debt servicing capacities of the institutions that have that debt. When growth slows, then that points toward slower revenue growth, probably slower profitability and somewhat weaker debt servicing capacity," she added.

Unsurprisingly, China's finance ministry didn't agree with the move.

In a statement on its website, the ministry said the downgrade was based on an "inappropriate method" and that Moody's was overestimating the difficulties China's economy faced, while underestimating the government's efforts to tackle structural reforms and overcapacity.

Foreign-exchange markets reacted to the downgrade, with the Australian dollar dropping from levels around $0.7480 to as low as $0.7452 in the wake of the announcement. China is among Australia's largest export markets.

But didn't react much, with the dollar fetching 6.8940 yuan at 9:38 a.m. HK/SIN, compared with Tuesday's close of 6.8890 yuan.

"Moody's expects that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent, the rise in leverage," Moody's said in a statement. "The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole."

It expected that while economic growth would remain relatively high, potential growth rates were likely to fall in the years ahead.

Moody's estimated that while the government budget deficit in 2016 was "moderate" at around 3 percent of gross domestic product (GDP), it expected the government's debt burden would rise toward 40 percent of GDP by 2018 and 45 percent by the end of the decade.

It also expected contingent and indirect liabilities would rise, pointing to policy bank loans, bonds issued by Local Government Financing Vehicles (LGFV) and other state-owned enterprises' (SOE) investments.

Moody's added that it expected economy-wide debt of the government, households and non-financial companies would rise, as economic activity tends to be financed with debt in the absence of a sizeable equity market. </s> The Standard & Poor's rating agency cut China's credit rating Thursday due to its rising debts, highlighting challenges faced by the country’s leaders as they cope with slowing economic growth.

The downgrade added to mounting warnings about the dangers of increasing Chinese debt, which has fueled fears of a banking crisis or a drag on economic growth. Moody's Investors Service cut its rating for China in May.

S&P lowered its rating on China's sovereign debt by one notch from AA- to A+, still among its highest ratings. The agency had given a warning sign of a possible downgrade in March 2016 when it changed China's outlook to negative.

“A prolonged period of strong credit growth has increased China's economic and financial risks,” S&P said in a statement. “Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”

The ratings cut, announced after Chinese financial markets closed for the day, could raise Beijing's borrowing costs slightly, but the more significant impact is on investor sentiment.

Phone calls to the Chinese Finance Ministry were not answered. After the Moody's downgrade in May, the ministry said the agency had used improper methods and misunderstood China's economic difficulties and financial strength.

The country’s leaders have cited reducing financial risk as a priority this year. They have launched initiatives to reduce debts owed by state companies, including by allowing banks to accept stock as repayment on loans. But private-sector analysts say they are moving too slowly.

Beijing relied on repeated infusions of credit to prop up growth after the 2008 global financial crisis.

That helped propel total non-government debt to the equivalent of 257% of annual economic output by the end of last year, according to the Bank for International Settlements. That is unusually high for a developing country and up from 143% in 2008.

Chinese economic growth fell from 14.2% in 2007 to 6.7% last year, though that still was among the world's strongest.

The government is trying to make the economy more productive by giving market forces a bigger role. It is trying to shrink bloated industries such as steel and cement in which supply exceeds demand, which has depressed prices and led to financial losses.

Beijing is trying to steer the economy to slower, more sustainable growth based on domestic consumption instead of investment and exports. But growth has dipped faster than planners wanted, raising the risk of politically dangerous job losses. Beijing has responded by flooding the economy with credit.

Official efforts to rein in debt “could stabilize the trend of financial risk in the medium term,” S&P said. “However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually.”

S&P kept its outlook for China stable. It said that reflected expectations the country will “maintain robust economic performance over the next three to four years.”

“We may raise our ratings on China if credit growth slows significantly and is sustained well below the current rates while maintaining real GDP growth at healthy levels,” S&P said. “A downgrade could ensue if we see a higher likelihood that China will ease its efforts to stem growing financial risk and allow credit growth to accelerate to support economic growth.” </s> Standard & Poor's lowered China's sovereign credit rating, joining a growing chorus of alarm over the nation's soaring debt levels despite government pledges to fend off financial risks.

In a Thursday statement, S&P Global Ratings said it downgraded China's rating to A+ from AA-, while changing its outlook to stable from negative. The action brings all the three major credit-rating firms in line in terms of their views of the creditworthiness of the world's second-largest economy. Fitch Ratings lowered China's rating in 2013, and Moody's Investors Service did so in May.

The downgrade of China's rating, the first such move by S&P since 1999, reflects its assessment that "a prolonged period of strong credit growth has increased China's economic and financial risks."

Market reaction to the move, announced after China's stock markets closed, was muted with little movement in the yuan, which edged down 0.30% against the U.S. dollar in mainland trading, reflecting the dollar's overnight strength following the latest Federal Reserve meeting.

Global investor sentiment toward China had shown signs of improvement in recent weeks. In the credit markets, the cost of default protection on Chinese sovereign debt earlier this month fell to its lowest levels in more than two years, according to data from IHS Markit.

"The timing for the S&P downgrade is a little bit surprising to me," said UBS economist Wang Tao.

Saumya Vaishampayan and Grace Zhu contributed to this article.
Moody's Investors Service downgrades the credit rating of the People's Republic of China from AA3 to A1.