The world's second largest economy is transitioning to a “new normal” of lower growth, driven by domestic consumption instead of credit-fuelled investment.
"Without credible and efficient reforms, China's gross domestic product growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable," Moody's said in a note today.
"Government debt would increase more sharply than we currently expect."
The credit ratings agency retained China's Aa3 rating, saying its sizeable foreign exchange reserves would act as a cushion while policymakers implement reforms.
However, Moody's warned that it could downgrade China further if it sees a slowing down of reforms needed to achieve sustainable growth.