Most recently, the US rating agency Fitch has intentionally downgraded China’s sovereign credit rating outlook to negative from stable which faced strong rejection from the Chinese policy makers.
They termed it biased and flawed and ignored basic parameters of judging the real strength and diversification of the Chinese macro-economy, which has further strengthened during first quarter of the 2024 in terms of manufacturing capacity, exports, seeking foreign direct investment, innovation, domestic consumption trends and stable financial & banking sectors. Therefore the Chinese government has the ability and determination to maintain sound sovereign credit.
Prominent regional experts and the Chinese economists also lambasted the ratings agency’s latest report which has serious methodological flaws only relying on negative headlines from Western media and failed to assess growing positive factors within the Chinese economy.
In a report, Fitch said it has revised the outlook on China’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable, and affirmed the IDR at ‘A+ which is untrue. Ironically the Fitch revision shows increasing risks to China’s public finance outlook as it so-called confronted with more uncertain and unstable economic prospects amid a transition away from real estate sector based growth however; the Chinese government considers it as a more sustainable growth model.
China has a large and diversified economy, which is still stable, sustainable and solid GDP growth prospects relative to having integral role in global goods trade, robust external finances, and reserve currency status of the yuan. The latest published reports of the Chinese economy vividly reflects its long term foreign exchange reserves standing at $3.2457 trillion, the world’s largest which means that China can ensure the stability of its currency. Other important tools for stabilizing the yuan include but are not limited to interest rate policy and the foreign reserve requirement ratio which are not facing any imminent structured or external crisis. Thus Fitch report does not have any substance and relevancy.
China’s Ministry of Finance (MOF) and Foreign Ministry regretted Fitch downgrading China’s sovereign credit rating outlook. Frankly speaking, the indicator system of Fitch’s sovereign credit rating methodology fails to show the positive role of China’s fiscal policy in promoting economic growth and stabilizing the macro-leverage ratio.
Its moderately expanding fiscal spending has improved the efficiency and effectiveness of fiscal funds to boost domestic demand and economic development which absolutely negates basic assumptions of the Fitch rating.
Critical analysis confirms that China’s long term fiscal policy is perfectly managing moderate fiscal deficit and making good use of treasurable debt funds helping expansion in domestic demand, supporting economic growth, and ultimately assisting maintain good sovereign credit.
Additionally, China’s plan to keep deficit-to-GDP ratio at 3 percent in 2024 is moderate and sensible and is favorable to stabilizing economic growth, controlling government debt levels and reserving policy space to tackle potential risks and challenges.
Mao Ning, a spokesperson for the Chinese Foreign Ministry rightly maintained that the long-term positive momentum of the Chinese economy has not changed reconfirming the Chinese government’s ability and determination to maintain sound sovereign credit equations clearly demonstrated deep-rooted strength of its fiscal and monetary policies gearing the different sectors of macro-economy economy towards greater productivity, progress and prosperity.
Actually, the Fitch report has serious flaws based on self-centric faulty lines without any objectivity and scientific correlations but many irrelevant assumptions.
It always tries to replicate a Western model and interpret China’s credit ratings through some negative market fluctuations which are not accurate interpretations.
Unfortunately, Fitch only trusted on some short-term vacillations in areas such as local debt and the property sector, instead of the full picture of China’s economic transition, which is undertaken by Chinese policy makers to shift from the previous model of relying on land sales to a new model of development. It seems that unrealistically, rely on small issues and using Western models to review China’s development are signs of the lack of understanding China.
It clearly upholds that Fitch’s methodology is flawed, as it’s clearly biased toward negative factors, while ignoring numerous reliable variables in China’s economic resilience and future prospects thus commits a professional and intellectual dishonesty.
In summary, the latest published data showed China’s macro-economy recovery which has been picking up pace. China’s official manufacturing purchasing managers’ index (PMI), stood at 50.8 in March 2024 returning to expansion territory for the first time since September 2023. On the other hand, China’s exports have also been increasing tremendously this year, with exports jumping by 10.3 percent in the first two months of 2024. Retail sales have also expanded by 5.5 percent in the first two months.
Moreover, China’s fiscal deficit is within a reasonable range. However, comparatively, Japan, the US and the EU have much bigger fiscal deficits. It seems that Fitch failed to recognize the anticipatory and long-term benefits of China’s fiscal policy adjustments aimed at high-quality development.
It badly ignores the essential role of maintaining a moderate deficit and strategic debt utilization to fuel domestic demand and economic development, and ultimately preserve China’s sovereign credit reputation.
The Chinese policy makers and authorities have already prevented and defused local government debt risks, through an effective guaranteed system of repayment of principal and interest on local governments’ legal debts.
China’s commitment to high-quality growth is reinforcing the positive momentum of China’s economy and its ability to maintain a solid sovereign credit standing due to which its GDP target of 2024 is achievable.
Some western forces, regulatory bodies and credit rating agencies have been hyping “China’s Peak Theory” using different rhetorical approaches despite their past false and fake propaganda being proved wrong. According to the latest data (2024), its GDP has a strong start of 7 percent. Industrial growth is 7 percent year-on-year, fixed asset investment up by 4.2 percent 5.08 trillion yuan on year-on year.
Furthermore, 18 Chinese provinces and cities reported real growth greater or equal to national GDP and 26 cities each with GDP of more than 1 trillion yuan. China’s contribution to global GDP 30 percent remained an important growth engine for the world.
Dr Mehmood Ul Hassan Khan
President: Pak-China Corridor of Knowledge, Pakistan
Executive Director: The Center for South & International Studies (CSAIS) Islamabad