Moody’s Investors Service advised staff in China to work from home ahead of its cut to the outlook for the country’s sovereign credit rating, a suggestion staff believed was prompted by concern over Beijing’s possible reaction, according to two employees familiar with the situation.
The move by the US ratings agency highlights the unease of many foreign companies doing business in the world’s second-largest economy, where some have suffered police raids, exit bans for staff and arrests amid tensions between China and the US and its allies.
Some Moody’s department heads in the country told associates on Friday that non-administrative staff in Beijing and Shanghai should not go into the office this week, they said.
“They didn’t give us the reason ... but everyone knows why,” said one China-based Moody’s employee, referring to the request to work from home. “We are afraid of government inspections.”
The staff member said Moody’s also advised analysts in Hong Kong to temporarily avoid travel to the Chinese mainland ahead of the cut. The agency on Tuesday lowered the outlook for China’s A1 long-term local and foreign-currency issuer rating to negative from stable.
IKEA's Irish store is its best performer globally
The staff member said working from home might prevent Chinese authorities from questioning many employees in one place if they decided to raid the agency but added that such a raid was still considered to be unlikely.
A Moody’s spokesperson said: “Our commitment to maintaining the confidentiality and integrity of the ratings process is paramount and therefore, we cannot comment on internal discussions, if any, related to specific credit ratings or issuers.”
Chinese authorities have raided the offices of several US-based consultancies this year and detained local employees of due diligence group Mintz over what Beijing said were national security concerns.
“We’ve seen crackdowns on due diligence companies and other firms, but those have been motivated by issues beyond just negative commentary,” said Michael Hirson, a China analyst at 22V Research in New York.
“I would be surprised if Moody’s rating action, which is based on just an argument about the outlook, generates anything remotely like an overt crackdown on the company,” Hirson said. “But clearly how the authorities handle this will be a test that investors and the business community are watching.”
Moody’s latest rating action has already triggered a spate of criticism from Chinese officials and on social media. In a statement on Wednesday, the National Development and Reform Commission, an economic planning body, accused the ratings agency of “bias and misunderstanding of China’s economic outlook”.
A popular WeChat social media account operated by state broadcaster China Central Television on Wednesday dismissed Moody’s concerns about a slower growth outlook and soaring government debt, two drivers of the cut in outlook. The post said Chinese authorities had “always been working on annual projects, looking at five-year plans while thinking about the long term”.
“A misjudgement by [Moody’s] will not cause too much harm for the Chinese economy,” said the post. “It may cause the company to lose its credibility.”
Another Moody’s staff member said some of the points raised by Chinese authorities made sense and that the agency was concerned about regulatory risks following the rating action.
“The Chinese authorities can make trouble for you if they want to,” the person said.
Despite the concerns, the ratings agency on Wednesday lowered its outlook for Hong Kong, Macau and 18 Chinese state-owned and private companies, including tech groups Tencent and Alibaba, from stable to negative.
Moody’s in a statement said the rating action was “primarily” driven by the change in outlook for China’s government credit ratings and reflected increased risks “related to structurally and persistently lower medium-term economic growth”. Copyright The Financial Times Limited 2023
