BEIJING • Moody's Investors Service cut its credit-rating outlook on China's largest phone company and the country's biggest banks after doing the same to its government.

The credit assessor reduced the outlook on 38 state-owned enterprises (SOEs), including China Mobile, to negative, it said yesterday, a day after cutting 25 non-insurance financial firms' outlook to negative from stable.

The financial institutions include Industrial and Commercial Bank of China and Bank of China.

The moves followed Moody's decision to lower its outlook on China's sovereign credit rating on Wednesday to negative from stable.

The agency highlighted the country's surging debt burden and questioned the government's ability to enact reforms, just days before Chinese leaders gather in Beijing to approve a five-year road map for the economy.

"The negative outlook revision on both the Chinese sovereign and banks is not a huge surprise as the challenges that China is facing are well flagged," Mr Nicholas Yap, a credit analyst at Mitsubishi UFJ Securities in Hong Kong, wrote in a report.

"We expect the near-term impact on yield spreads to be relatively muted."

Among the other SOEs included in the move by Moody's were Citic Group, China State Construction Engineering and China Metallurgical Group.

The financial institutions that had their credit rating outlook lowered include three policy banks, 12 domestic commercial banks and three distressed asset-management companies, Moody's said on Wednesday.

Besides ICBC and Bank of China, Agricultural Bank of China and China Construction Bank also had their outlooks lowered.

The government's financial strength may come under pressure if it takes on liabilities from troubled state-owned companies, while capital outflows have limited policy makers' scope to stimulate the weakest economy in a quarter century, the ratings company said in its statement.

BLOOMBERG