Moody's affirmed China's long-term domestic and foreign currency issuance ratings at A1 and said it expects the country's annual GDP growth to reach 4.0 percent in 2024 and 2025.

Moody's said in a statement that the change to a negative outlook reflects growing evidence that authorities will have to provide financial support to local governments and heavily indebted state companies, posing widespread risks to China's financial, economic and institutional strength.

"The change in outlook also reflects the increased risks associated with structurally low and sustained medium-term economic growth as well as the continued contraction in the size of the real estate sector," Moody's said.

The world's second-largest economy is struggling for a strong post-Covid-19 recovery this year as a deepening real estate crisis, local government debt risks, slowing global growth and geopolitical tensions dampened momentum. A series of policy support measures have only been able to prove their usefulness modestly, increasing pressure on the authorities to introduce more stimulus.

Commenting on Moody's decision, China's Finance Ministry said it was disappointed by Moody's downgrade, adding that the economy would maintain its recovery in a positive direction. She also said real estate and local government risks could be controlled.

While China's economy is seen as on track to meet the government's annual growth target of around 5 percent this year, Moody's expects China's annual economic growth to slow to an average of 3.8 percent from 2026 to 2030.