“The long-term positive trend of China's economy has not changed, and so has the Chinese government's ability and determination to maintain good government credit.”
'We can't afford to fall behind': China's local debt problem hurts businesses and creates mistrust
'We can't afford to fall behind': China's local debt problem hurts businesses and creates mistrust
The ministry added that local debt risks are “under control” and de-risking is progressing in an orderly manner.
But Fitch's move comes at a sensitive time for the world's second-largest economy, with China set to release first-quarter data on Tuesday, which is expected to see a rebound in economic activity.
The Ministry of Finance, which had deep and extensive consultations with Fitch before downgrading, said it had scientifically and rationally sorted out the size of the fiscal deficit and kept interest rates at reasonable levels.
The Chinese government always takes into account multiple goals such as supporting economic development, preventing fiscal risks, and achieving fiscal sustainability.
“Keeping the budget deficit at a reasonable level of 3% in 2024 will stabilize growth, control government debt ratios, and ensure policy space to address future risks and challenges,” the ministry said. said.
“Over the long term, maintaining moderate deficits and making better use of precious debt resources will help boost domestic demand, support growth, and, in turn, maintain good sovereign credit.
“The Chinese government always considers multiple goals, including supporting economic development, preventing fiscal risks, and achieving fiscal sustainability.”
Fitch maintained its “A+'' rating on Chinese government bonds, which remains lower than the “AA+'' rating on U.S. bonds.
This rating means that China's sovereign debt is still considered upper-mid investment grade.
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“Two sessions”: China’s economic and diplomatic challenges | Talking Post with Yonden Lhatoo
“Two sessions”: China’s economic and diplomatic challenges | Talking Post with Yonden Lhatoo
With economic activity data showing signs of stabilization so far this year, many investment banks are starting to express optimism about China's economy, with higher growth forecasts.
Citi raised its annual growth forecast to 5% from 4.6%, while Nomura raised its forecast to 4.2% from 4%.
But there are growing calls for more fiscal stimulus to ensure this year's growth targets are met.
“Fitch believes that fiscal policy is increasingly likely to play a key role in supporting growth in the coming years, which could sustain a steady upward trend in debt,” the rating agency said. There is,” he said.
“Contingent liability risks may also be increasing as lower nominal growth rates further exacerbate the challenge of managing high economy-wide leverage.”
