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 ratings agency also changed its outlook for China to stable from negative. The downgrade by one notch to an A1 rating from Aa3 comes at a time when the Chinese government is grappling with the challenges of slowing economic growth and rising financial risks stemming from soaring debt. 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, according to Reuters. “Moody’s expects that economy-wide leverage will increase further over the coming years,” it said, adding that China’s reform program is likely to slow, but not prevent, the rise in leverage.
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