Fitch maintains A+ sovereign rating on China despite trade tensions
Wu Zheyu
["china"]
02:21
One of the“Big Three credit rating agencies”Fitch said that it has no idea to change the view on China's A+ sovereign rating amid escalating trade tensions, as the policymakers would still be in a position to reach their 2019 growth target without the need to significantly step-up stimulus efforts.
Fitch affirmed China's sovereign rating at A+ with a stable outlook despite the increase of U.S. tariffs to 25 percent on 200 billion U.S. dollars worth of goods from China. The rating agency claimed that China's ratings are supported by the country's robust external finances, strong macroeconomic performance, and its size as the world's second-largest economy.
Andrew Fennell, director of China Sovereign at Fitch Rating, thought that the recent tariffs are relatively manageable for China and the sovereign rating on China could accommodate some forms of incremental policy easing.
Fennell cited that fiscal policy is currently taking up an active role in China than any other sectors. He estimated that China's consolidated fiscal deficit is rising substantially this year, to nearly six percent of GDP. The director also noted that quasi-fiscal activity, including infrastructure spending, has been more muted than in the past.
VCG Photo

VCG Photo

Meanwhile, the agency believed that burden on local government fiscal budgets is still manageable, as financing vehicles of local governments would continue to play a critical role in rolling out local infrastructure investment and public expenditure, based on Terry Gao, the head of Asia-Pacific International Public Finance at Fitch Ratings.
The latest data showed that Chinese corporates' onshore bond issuance rose by 36.2 percent annually to 3.3 trillion yuan (about 480 billion U.S. dollars) in the first four months of 2019, sustaining the growth recorded in 2018 amid strong refinancing needs.
Fitch considered that the existing mechanisms like Bond Connect and China's inclusion in Bloomberg's indices did increase global investors' appetite for the onshore market.
Jenny Huang, director of China Corporate Research at Fitch Rating, said they saw a peak of foreign investment participation during the opening-up of China's capital market. Huang explained that the Chinese bond market is the second largest in the world, which is just too big for foreign investors to ignore.