(Reuters) -Moody’s on Wednesday downgraded its outlook on Hong Kong to negative from stable, a day after cutting China’s credit outlook citing costs to bail out local governments and state firms or to control its property crisis.
The downgrade in Hong Kong’s outlook reflects an assessment of tight political, institutional, economic and financial links between Hong Kong and China, Moody’s said.
Hong Kong dismissed the decision on those grounds.
“We disagree with its decision to change Hong Kong’s credit outlook to “negative,” it said, adding that the ties with China were “a source of strength for long-term development.”
The ratings agency affirmed Hong Kong’s Aa3 ratings, reflecting credit strengths such as a wealthy and competitive economy, fiscal and external buffers and a track record of effective monetary and fiscal policy.
Following imposition of a National Security Law in 2020 and changes to Hong Kong’s electoral system, Moody’s said it “expects further erosion of the (city’s) autonomy of political, institutional and economic decisions to continue incrementally”.
It said a weakening trend in mainland China would affect Hong Kong’s economy, while “weaker growth in Hong Kong could erode the government’s fiscal buffers.”
The ratings agency separately also lowered the outlook on Macau to negative from stable.
Last month, Hong Kong’s government revised down the full-year economic growth forecast to 3.2% from an earlier estimate of a 4.0% to 5.0% range.
(Reporting by Gursimran Kaur in Bengaluru, and Twinnie Siu in Hong Kong, Editing by Louise Heavens and Bernadette Baum)