One-sided rating methodology lacks objectivity
Editor’s Note: China’s Finance Ministry on Wednesday denounced a report released by Fitch Ratings that day, which kept China’s sovereign debt rating at A+ but downgraded its outlook to negative. The ministry said that China’s deficit is at a moderate and reasonable level and risks are under control. The following are excerpts of the ministry’s response:
The indicator system of Fitch’s sovereign credit rating methodology fails to reflect the positive role of China’s fiscal policy in promoting economic growth and stabilizing the macro-leverage ratio.
The Chinese government has always insisted on taking into account multiple goals such as supporting economic development, preventing fiscal risks and achieving fiscal sustainability.
China has always arranged the scale of its deficit in a scientific manner and maintained the deficit rate at a reasonable level. The deficit ratio in 2024 is set at 3 percent, which is moderate and reasonable overall. It is conducive to stabilizing economic growth, controlling the government debt ratio, and reserving policy space to deal with possible risks and challenges in the future.
The long-term positive trend of China’s economy has not changed, nor has the Chinese government’s ability and determination to maintain good sovereign credit.
In 2024, it is planned that the national fiscal deficit should be 4.06 trillion yuan ($561 billion), an increase of 180 billion yuan from the budget at the beginning of last year. The estimated deficit rate is 3 percent, which is the same as the budget at the beginning of last year. Such an arrangement is conducive to maintaining the intensity of necessary expenditures, giving full play to the role of fiscal counter-cyclical adjustment, coordinating development and security, preventing government debt risks, and leaving room for dealing with complex and difficult situations in the future.
The Ministry of Finance arranges a certain scale of refinancing government bonds within the local government debt limit space to support local governments in resolving the hidden debts of financing platforms and cleaning up government arrears of corporate accounts, so as to ease the pressure of centralized repayment of mature debts and reduce the burden of interest payments.
Based on their own efforts, various localities have coordinated various resources, formulated debt reduction plans and clarified specific measures one by one. Through concerted efforts from all parties, local debt risks have been alleviated as a whole. The repayment of principal and interest on statutory debts of local governments is effectively guaranteed, and the scale of implicit debts is gradually declining; positive progress has been made in the settlement of government arrears to corporate accounts, and the number of local financing platforms has been reduced. Overall, the country’s local government debt resolution work is progressing in an orderly manner and the risks are generally controllable.