Fitch Ratings yesterday said it had downgraded China’s sovereign credit outlook to negative, citing increased risks to the country’s public finances, in a move Beijing swiftly called “regrettable.”
Chinese officials have struggled for months to kick-start economic growth as they battle a range of headwinds, particularly a prolonged property sector crisis that has fueled fears of wider contagion.
Policymakers have announced a series of targeted measures and issued billions of dollars in sovereign bonds, aimed at boosting infrastructure spending and spurring consumption, but analysts have said much more needs to be done.
Photo: EPA-EFE
Fitch said its outlook revision “reflects increasing risks to China’s public finance outlook” as the country “contends with more uncertain economic prospects.”
“Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective,” the agency said.
“Fiscal policy is increasingly likely to play an important role in supporting growth in the coming years which could keep debt on a steady upward trend,” Fitch added.
The Chinese Ministry of Finance immediately said the decision was “regrettable.”
“From the results, it can be seen that the indicator system of Fitch’s sovereign credit rating methodology has failed to effectively and proactively reflect” Beijing’s efforts to promote economic growth, the ministry said in a statement.
While Fitch lowered its outlook, it affirmed China’s credit rating at “A+.”
It said the move reflected the country’s “large and diversified economy, still solid GDP growth prospects relative to peers, integral role in global goods trade, robust external finances and reserve currency status of the yuan.”
However, “these strengths are balanced against high economy-wide leverage, rising fiscal challenges and per capita income and governance scores below those of ‘A’ category peers,” it added.
Financial markets were unfazed, with China’s 10-year sovereign bond yield little changed at about 2.29 percent and the yuan also steady.
Fitch’s action matched a similar one by Moody’s Investors Service in December last year.
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