Moody's: China's sovereign rating outlook stable

International rating firm Moody's Investors Service has a stable sovereign rating outlook (Aa3 stable) on China and expects that economic growth will remain relatively robust, it said in a report on Monday.

“The economy may grow at a slower rate of mid-7 percent in 2014, driven by a more moderate pace of growth for gross fixed capital formation,” said Tom Byrne, a senior vice-president at Moody's Sovereign Risk Group.

At the same time, the company sees four potential risks over the near to medium term; firstly, a debt build-up in local government financing vehicles; secondly, a credit boom in the shadow banking system; thirdly, problems related to the financial health of the State-owned industrial sector; and lastly, concerns over underlying social tensions related to urbanization and property rights.

“On recent policy statements encapsulated by the Third Plenum's decisions, our interpretation is that while China's growth imperative remains strong and credit positive for the sovereign, the CPC's new leadership recognizes that the model established two decades ago is producing diminishing economic returns. In our view, the leadership recognizes that the imperative of maintaining a relatively rapid rate of economic growth alone will not address China's social challenges this decade,” Byrne said.