China: Fitch agency downgrades credit outlook, Beijing considers this decision “regrettable”

Ratings agency Fitch has lowered China's sovereign credit outlook to negative, the agency said Wednesday, citing increased risks to the country's public finances, a decision described as "regrettable" by Beijing. “The revised outlook reflects growing risks to China's public finances as the country faces a more uncertain economic outlook,” the agency said in a press release. “Significant budget deficits and rising public debt in recent years have eroded fiscal reserves from a rating perspective,” the agency warned.

“Fiscal policy is increasingly likely to play an important role in supporting growth over the coming years, which could keep debt on a steady upward trend,” she added. According to Fitch, the expected slowdown in economic growth "exacerbates the difficulties in managing high leverage across the economy." The Chinese Ministry of Finance reacted quickly, deeming this decision “regrettable”. "The results show that the indicator system of Fitch's sovereign credit rating methodology failed to effectively and proactively reflect Beijing's efforts to promote economic growth," the ministry said in a statement. communicated.

Beijing has pledged to do more to boost employment and stabilize the property market, although Housing Minister Ni Hong admitted in March that this remained “very difficult”. Real estate companies that “need to go bankrupt should go bankrupt, and those that need to be restructured should be restructured,” Hong told a news conference on the sidelines of a major political meeting. Fitch affirmed China's credit rating at 'A', a move the agency said reflects the country's "large and diversified economy, its still-strong GDP growth outlook relative to peers, its integral role in global merchandise trade, its robust external finances and the yuan's reserve currency status.

Nevertheless, “these strengths are offset by high economy-wide leverage, growing fiscal challenges, lower per capita income and governance scores than Category A peers,” added the agency. Chinese authorities are working to revive the world's second-largest economy by battling a series of headwinds, including a prolonged crisis in the real estate sector, soaring youth unemployment and weak global demand for Chinese goods.

Policymakers announced a series of targeted measures as well as the issuance of billions of dollars in sovereign bonds, in a bid to boost infrastructure spending and consumption, but analysts said much remained to be done. TO DO. Last month, Beijing set an economic growth target of 5% for 2024, an ambitious goal that leaders admitted would be difficult to achieve.