“The change in Macau’s rating outlook to negative reflects Moody’s assessment of the close political, institutional, economic and financial links between Macau” and mainland China, the agency said on Wednesday in a statement.
Moody’s highlighted that the tourism and gaming sectors are very dependent on Chinese visitors and that Macau’s banking system “is equally exposed” to mainland China, whose rating the agency also revised downwards.
In a response released on Wednesday night, the Macau Monetary Authority (AMCM) argued that, on the contrary, “close economic ties” with the interior of China “provide strong support for Macau’s long-term development”.
The world economy “currently faces complex challenges and multiple uncertainties”, while China’s Gross Domestic Product (GDP) grew 5.2 percent until September, “which will have a positive impact” for Macau, argued the AMCM, in a statement .
Despite the downward revision of the outlook, Moody’s maintained Macau’s rating at Aa3. Ratings in the “Aa” category, the agency’s fourth highest, are high investment grade and subject to very low credit risk.
Macau’s “large fiscal and external reserves” give the economy “very strong buffers to absorb shocks and long-term negative trends, including the structural slowdown of the mainland Chinese economy,” Moody’s added.
Also on Wednesday, the agency had lowered China’s rating outlook from “stable” to “negative”, due to the high levels of debt in the world’s second largest economy.
“The change to a negative outlook reflects growing evidence that the government and the public sector will provide financial support to regional governments and public companies in difficulty,” Moody’s said in a statement.
This “generates significant risks (…) for China’s fiscal solidity”, given the slowdown in the country’s economy and difficulties in the real estate sector, he added. Following the report, the Chinese Ministry of Finance declared itself “disappointed” with Moody’s decision.
For a long time, the real estate sector represented a quarter of China’s GDP, ensuring the subsistence of thousands of companies and low-skilled workers.
Over the last 20 years, the sector has experienced remarkable growth, but the financial problems of emblematic real estate groups are now fueling buyers’ distrust, in a context of unfinished homes and falling prices per square meter.
Faced with a small capital market, the sector concentrates a huge portion of Chinese family wealth – around 70 percent, according to different estimates. To relaunch the real estate market and stimulate activity, the Government has intensified support for the sector in recent months. But the results remain inconclusive.
Platform with Lusa