San Francisco Frontiers - Fitch downgrades China sovereign credit outlook on debt fears

Chinese officials have struggled for months to kickstart economic growth as they battle a range of headwinds, particularly a prolonged property sector crisis that has fueled fears of wider contagion.

Policymakers have announced a series of targeted measures as well as the issuance of billions of dollars in sovereign bonds, aimed at boosting infrastructure spending and spurring consumption, but analysts have said much more needs to be done.

Beijing last month set a goal of five percent growth for the world's number-two economy in 2024, an ambitious objective that the leaders admitted would be a challenge to meet.

Fitch said its outlook revision "reflects increasing risks to China's public finance outlook" as the country "contends with more uncertain economic prospects".

"Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective," the agency warned.

And it said "fiscal policy is increasingly likely to play an important role in supporting growth in the coming years which could keep debt on a steady upward trend".

It also said projected lower economic growth "exacerbates challenges to managing high economy-wide leverage".

Beijing's finance ministry immediately said the decision was "regrettable".

"From the results, it can be seen that the indicator system of Fitch's sovereign credit rating methodology has failed to effectively and proactively reflect" Beijing's efforts to promote economic growth, it said in a statement.

Beijing has pledged to do more to boost employment and stabilise the property market, though an official last month admitted doing that remained "very difficult".

Real estate companies that "need to go bankrupt should go bankrupt, and those that need restructuring should be restructured", Housing Minister Ni Hong told a news conference on the sidelines of a major political meeting.

Fitch also on Wednesday affirmed China's credit rating at "A+".

It said that move reflected the country's "large and diversified economy, still solid GDP growth prospects relative to peers, integral role in global goods trade, robust external finances, and reserve currency status of the yuan".

But, it added, "these strengths are balanced against high economy-wide leverage, rising fiscal challenges and per capita income and governance scores below those of 'A' category peers"

S.Jackson--SFF