Fitch lowers China outlook to negative on steady rise in debt
Keeps A+ credit rating but sees more borrowing amid slowdown
Fitch Ratings revised China’s outlook to negative from stable, saying the government is likely to pile on debt as it seeks to pull the economy out of a real estatedriven slowdown.
Growing uncertainty about the outlook for the world’s second-biggest economy, amid Beijing’s drive to make growth less dependent on housing, “could keep debt on a steady upward trend,” Fitch said on Wednesday.
China’s government, which has been talking up the prospect of a turnaround in the economy, rapidly pushed back — saying the rating company failed to reflect the role of fiscal policy in shoring up growth, which helps to stabilise debt burdens. Financial markets were unfazed, with the yuan steady. China’s 10-year sovereign bond yield edged higher after trading littlechanged for most of the day.
In the coming week, the government is due to release some key indicators — including first-quarter growth — while the central bank will decide on a key loan rate. Financial markets are closely watching for clues about whether the economy has put the worst behind it.
While Fitch lowered its outlook, it maintained China’s long-term foreign-currency issuer default rating at A+. It said one key point to watch out for is “the degree to which fiscal support reignites underlying GDP growth.”
Responding to Fitch, China’s Ministry of Finance defended its fiscal policy as supportive for growth, arguing the government will be able to “control its debt ratios well and save policy room for dealing with potential risks and challenges in future.”
“WE REGRET FITCH’S CUT TO CHINA’S CREDIT OUTLOOK. THE COMPANY’S RATINGS METHODS FAILED TO REFLECT ON THE POSITIVE ROLE OF CHINA’S FISCAL POLICY IN STABILISING ECONOMIC GROWTH AS WELL AS THE MACRO LEVERAGE RATIO IN AN EFFECTIVE AND FORWARD-LOOKING WAY”
S&P downgrades Vanke
S&P Global Ratings downgraded China Vanke to junk, underscoring mounting pressure on the statebacked developer as it faces a cash crunch.