Ratings agency Moody's cut China's credit outlook to stable from positive on Tuesday, citing concerns on the country's opaque local government debt, fast bank lending growth and stalled economic reforms.
Moody's kept China's rating at Aa3, but the change in outlook means it does not expect to give China an upgrade over the next year to 18 months.
It came a day after Beijing announced growth in the world's second-largest economy slowed to 7.7 percent in the first quarter, lower than market expectations.
"Progress has been less than anticipated in the process of both reducing latent risks by making local government contingent liabilities more transparent and in reining in rapid credit growth," Moody's said in a statement.
"Credit-positive structural reforms under the new leadership are expected over time, but their scope and pace may not be sufficient over the course of the next 12-18 months to justify a rating upgrade," it added.
The slowdown from growth of 7.9 percent in the last three months of 2012, which snapped seven straight quarters of deceleration, fuelled fears that recovery is faltering on subdued overseas demand and domestic woes.
Moody's warned that "a significantly greater-than-anticipated slowdown in economic growth", a deterioration in government finances and a rise in social unrest could add "downward pressure" on China's credit rating.
Risks from China's local government liabilities could "derail the transition to a more balanced and more moderately growing economy", it said.
Beijing's National Audit Office identified local-level debt at 10.7 trillion yuan ($1.7 trillion) at the end of 2010, or 27 percent of the Chinese economy in the year, the latest figures available. But the agency said the actual number could be even larger.
Moody's said Chinese authorities lack policy tools to control shadow banking, which is increasingly driving credit growth, and need to take steps to ensure it does not destabilise the financial system in the future.
The government has announced broad reform initiatives aimed at narrowing the income gap and fighting corruption, but the impact on the economy is limited as details are sketchy and no timeframe is given on implementation, it added.