Why Moody's has maintained its 'negative' outlook for China's economy
What's the story
Moody's Investors Service has retained its 'negative' outlook on China's economy, despite a recent tariff truce between China and the United States.
The credit rating agency reaffirmed its A1 rating for China, but warned that tensions with major trading partners could have a long-lasting negative impact on the country's credit profile.
Rating rationale
Moody's acknowledges changing factors for China's negative outlook
Moody's acknowledged that the factors influencing China's negative outlook have changed, referring to a shift from concerns about local government debt and state-owned firms' health.
It added these risks have now receded due to concerted government policy and no longer weigh meaningfully on China's A1 rating.
Rating changes
Fitch's downgrade and investor scrutiny
In April, Fitch downgraded China's sovereign credit rating by one notch to 'A,' citing rapidly rising debt and deteriorating public finances.
The move has led investors to closely monitor how other rating agencies and financial institutions assess the health of the world's second-largest economy.
This comes after US President Donald Trump's decision to impose 145% tariffs on China last month.
Official response
China's finance ministry responds to Moody's decision
In response to Moody's decision, China's finance ministry said the agency's decision to keep the country's rating and outlook unchanged was "a positive reflection of the prospects for China's economy."
However, Moody's has warned that "uncertainty around future trade restrictions and global trade flows remains."
The agency also predicted that tariffs on Chinese exports to major markets would remain higher than at the start of the year.