By rawf8 @

Moody’s has cut its outlook to negative on China’s debt. Will a new round of stimulus save China from a debt implosion? Weilun Soon reports in The Wall Street Journal:

China’s mounting local government debt woes are putting pressure on the country’s credit ratings.

Moody’s Investors Service lowered its outlook for China’s credit rating from stable to negative on Tuesday, warning that the financial stresses of some regional and local governments will require Beijing to provide support to them. That could weigh on China’s government finances at a time when its economy is slowing.

The New York-based credit-ratings firm kept its long-term rating of A1 on the nation’s sovereign debt, a level that is four notches below its top Aaa rating. But the outlook change signaled how the risks from China’s local government debts have become too big to ignore.

Chinese cities and provinces have as much as $11 trillion in off-balance-sheet debt, according to some estimates. Many economists have warned that a large chunk of it is at a high risk of default and could cause significant losses for banks and investors that have lent money to local governments.

China’s central government said last month that it places great importance on preventing and resolving the risks of these hidden debts. Pan Gongsheng, the governor of the People’s Bank of China, has said the central bank would provide emergency funding to highly indebted local governments. A broad effort is currently under way to refinance some of the problematic hidden debt with new government bonds.

Read more here.