Moody's Investors Service said the outlook for China's bond ratings remains positive, underpinned by favorable medium-term economic growth prospects and strong government debt dynamics.

Rapid economic growth, coupled with low deficits and debt of the central government, have provided ample fiscal headroom to manage contingent risks in local government finances, or in the banking system, Moody's said in a report on Thursday.

Moreover, extraordinary strong external payments position, provides insulation from the turbulence in the global financial markets.

However, it urged China to control local government finances and a new wave of reform in the financial system to sustain economic growth.

The Eurozone recession and the after effects of the massive stimulus that was provided in response to the global financial crisis are slowing China's growth. The rating agency sees real economic growth easing to a range of 7.5 percent-8.5 percent in 2012 and 2013.

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