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Moody's Downgrading China's Credit Rating Has Nothing to Do With Politics


A Chinese flag hangs near an automated parcel handling line at a warehouse for an online retailer in Beijing, Nov. 11, 2020. (AP/Mark Schiefelbein)
A Chinese flag hangs near an automated parcel handling line at a warehouse for an online retailer in Beijing, Nov. 11, 2020. (AP/Mark Schiefelbein)
Global Times

Global Times

“It's widely known that the U.S. firm's credit rating on China and Chinese companies are politically biased.”

False

On December 5, Moody’s downgraded its outlook on China’s credit ratings from stable to negative.

A spokesperson from Chinese Ministry of Finance responded hours later, saying Beijing is “disappointed with the decision.”

Chinese state media outlets reacted more fiercely, with Global Times and others calling Moody’s decision “biased and unprofessional.”

In a December 6 editorial, GT assumed that Moody’s is politically biased against China because it’s based in the United States:

“It's widely known that the U.S. firm's credit rating on China and Chinese companies are politically biased.”

That is false.

Moody’s is apolitical. It assesses the financial strength of companies and governments, especially their ability to meet principal and interest payments on debts regardless of the United States’ political sympathies and antipathies.

In fact, Moody’s downgraded the United States’ credit rating from “stable” to “negative” on November 10, less than a month before downgrading China’s economic outlook.

The U.S. Capitol in Washington, DC, is seen at dawn. Moody's lowered its outlook on the U.S. credit rating to "negative" from "stable" citing large fiscal deficits and a decline in debt affordability. (AP/J. Scott Applewhite)
The U.S. Capitol in Washington, DC, is seen at dawn. Moody's lowered its outlook on the U.S. credit rating to "negative" from "stable" citing large fiscal deficits and a decline in debt affordability. (AP/J. Scott Applewhite)

At that time, Global Times welcomed the move, saying Moody’s downgrade “is a reminder to the U.S. that if it does not take its deficit and debt problems seriously, market confidence in its Treasury debt will not last forever.”

Moody’s conducts an in-depth evaluation of the financial health and economic conditions of the entity being rated, then uses various quantitative and qualitative factors to form an evaluation of the entity’s credit risks by using a standardized scale that indicates the likelihood of default or failure to meet financial obligations.

The letter-based credit rating scale ranges from the highest “Aaa” to the lowest “C.”

This week, Moody’s downgraded China’s sovereign bonds, which is the debt security issued by the Chinese government to raise money for financing government programs, cover interest due, or repay old debts.

The move underscores concerns over rising debt levels and the crisis in the country’s property development sector.

Other assessments concur with Moody’s. The U.S. Congressional Research Service reported in September that China’s total non-financial debt — household, corporate, and government — reached 297% of its GDP in 2022, with most debt held by private firms and local governments.

China also faces a series of defaults by its major property developers tied to local governments, including Evergrande Group and Country Garden.

Moody’s is one of the three global agencies that dominate the credit rating industry. The three control 95% of the rating business. The other two are Standard and Poor's (S&P), and Fitch Group, all three are U.S. companies.

While widely regarded as a reputable and influential financial services company, Moody's came under criticism during the 2008 financial crisis for giving high credit ratings to mortgage-backed securities that made up subprime loans.

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