The rating agency Moody's downgraded the outlook on China's credit rating to "negative" from "stable" Tuesday due to soaring debt in the world's second-largest economy, with Beijing saying it was "disappointed" by the move.

The agency also pointed to lower medium-term economic growth and potential risks associated with a major correction in China's vast property sector.

China's post-pandemic recovery has been hampered by weak consumer and business confidence, a persistent housing crisis, record youth unemployment and a global slowdown weighing on demand for the country's goods.

Those woes have piled pressure on central and local governments to step in with more financial support following a one trillion yuan ($137 billion) sovereign bond issuance by Beijing in October.

The downgrade reflects growing evidence that authorities must provide financial support for debt-laden local governments and state firms, posing broad risks to China's fiscal, economic and institutional strength, Moody's statement states.

"The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector," the U.S. agency said.

The move by Moody's was its first change in China's view since it cut its rating by one notch to A1 in 2017, citing expectations of slowing growth and rising debt.

While Moody's affirmed China's A1 long-term local and foreign-currency issuer ratings on Tuesday, it expects the country's annual gross domestic product (GDP) growth to slow to 4.0% in 2024 and 2025 and average 3.8% from 2026 to 2030.

Most analysts believe the economy is on track to hit the government's annual growth target of around 5% this year, but activity is highly uneven.

The world's second-biggest economy has struggled to mount a robust post-COVID-19 recovery as a deepening crisis in the housing market, local government debt risks, slow global growth, and geopolitical tensions have dented momentum.

A flurry of policy support measures has proven only modestly beneficial, raising pressure on authorities to roll out more stimulus.

Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China's economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund (IMF).

After years of over-investment in infrastructure, plummeting returns from land sales and soaring costs to battle COVID-19, economists say debt-laden municipalities now represent a significant economic risk.

China's Finance Ministry said it was "disappointed" by Moody's downgrade, adding that the economy will maintain its rebound and positive trend. It also said property and local government risks are controllable.

"Since the beginning of this year, facing a complex and severe international situation and against the backdrop of unstable global economic recovery and weakening momentum, China's macro economy has continued to recover," a spokesperson said.

"Moody's concerns about China's economic growth prospects, fiscal sustainability and other aspects are unnecessary," the ministry said.

In October, China unveiled a plan to issue 1 trillion yuan ($139.84 billion) in sovereign bonds by the end of the year to help kick-start activity, raising the 2023 budget deficit target to 3.8% of GDP from the original 3%.

The central bank has also recently implemented modest interest rate cuts and pumped more cash into the economy, pledging to sustain policy support.