Fitch Downgrades China Government Debt Forecast. Beijing’s Ministry of Finance responds annoyed
Ratings agency Fitch revised its outlook on China's sovereign rating to negative on Tuesday, citing risks to public finances as the economy faces growing uncertainty as it transitions to new growth patterns.
Fitch forecast the government deficit will rise to 7.1% of gross domestic product (GDP) in 2024 from 5.8% in 2023, the highest since 8.6% in 2020, when Beijing's tight restrictions have weighed on the world's No. 2 economy.
While lowering the outlook, indicating that a downgrade is possible in the medium term, the agency confirmed China's IDR rating at “A+” .
Fitch forecast China's economic growth will slow to 4.5% in 2024 from 5.2% last year, in contrast to Citi and the International Monetary Fund, which both revised up their forecasts for China.
China's industrial production and retail sales beat forecasts in January-February, combining with better-than-expected export and consumer inflation indicators, providing an initial boost to Beijing's hopes of achieving what analysts described as an ambitious gross domestic product growth target of 5.0% for 2024.
“The revised outlook reflects growing risks to the outlook for China's public finances, as the country faces a more uncertain economic outlook amid a transition from real estate-based growth to what the Government views as a more sustainable growth model,” Fitch said.
Chinese Ministry of Finance
A sharp reaction from the finance ministry
“It is unfortunate to see Fitch downgraded ,” Beijing's Ministry of Finance said. “The positive long-term trend of the Chinese economy has not changed, nor has the Chinese government's ability and determination to maintain good sovereign credit.”
The Ministry added that local debt risk is “controllable” and that de-risking is proceeding in an orderly manner.
China had also expressed disappointment in December after fellow international ratings agencyMoody's Investors Service cut the outlook for Chinese sovereign bonds from stable to negative.
Apparently China's public debt is not that high, but the problem is not that of the central government, but that of local administrations, which is much more complex, less known and much more expensive
But Fitch's move comes at a delicate time for the world's second-largest economy, with China due to release first-quarter data on Tuesday, which is expected to show a recovery in economic activities.
The Ministry of Finance, which had in-depth and extensive discussions with Fitch before the downgrade, said it had scientifically and rationally arranged the size of the fiscal deficit and kept the rate at a reasonable level.
The Chinese Government always takes into account multiple objectives, such as supporting economic development, preventing fiscal risks and achieving fiscal sustainability.
Ministry of Finance stated that: “Keeping the deficit rate at a reasonable level of 3 percent in 2024 is conducive to stabilizing growth, controlling the public debt-to-GDP ratio and reserving political space to address risks and future challenges”, “In the long run, maintaining a moderate deficit and making good use of precious debt funds will help stimulate domestic demand, support growth and, in turn, maintain good sovereign credit.
Obviously the Ministry throws water on the fire at the moment and promises austerity, but, personally, I bet a coffee that the Beijing government will give priority to economic growth rather than debt relief. Globally the suckers are concentrated only in the EU.
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Fitch Article Downgrades China Government Debt Forecast. Beijing's Ministry of Finance responds with annoyance from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/fitch-declassa-le-previsioni-sul-debito-statale-cinese-il-ministero-delle-finanze-di-pechino-risponde-seccato/ on Wed, 10 Apr 2024 09:00:31 +0000.