Rating Agency Fitch’s sovereign credit rating methodology and indicator system have failed to effectively and prospectively reflect the positive role of China’s fiscal policies, which are properly more proactive with better efficacy in boosting economic growth and, in turn, stabilizing macro leverage ratios, a senior official from the Ministry of Finance said on Wednesday.
According to the online statement published by the ministry, the official said that in the long run, maintaining an appropriate deficit scale and using valuable debt funds properly will help expand domestic demand, support economic growth, and eventually facilitate keeping a sound sovereign credit.
The comments came after Fitch revised on Tuesday its outlook on China’ sovereign rating to negative from stable, citing increasing risks to the country’s public finance outlook.
“The Chinese government always manages to attain the multiple goals of supporting economic development, preventing fiscal risks, and achieving fiscal sustainability, while scientifically and rationally planning for the deficit scale in accordance with changes in the situation, thereby maintaining the deficit rate at a reasonable level,” the official said.
China has set targeted fiscal deficit-to-GDP ratio at 3 percent this year, which is moderate, reasonable, and conducive to stable economic growth, and also could effectively control the government’s debt ratio. It also reserves policy space for addressing possible risks and challenges in the future, the official said.
The long-term positive prospects of the Chinese economy remains unchanged, and the Chinese government’s ability and determination to maintain a good sovereign credit have not changed, the official added.
China’s budget deficits stand at 4.06 trillion yuan ($560 billion) in 2024, growing 180 billion yuan from that of last year. The expected deficit rate, of 3 percent, is the same as the target last year.
Such an arrangement is conducive to maintaining the necessary expenditure intensity to utilize counter-cyclical fiscal adjustments and thereby stabilize and boost market confidence. It is also conducive to balancing development and security, preventing government debt risks, and leaving room for dealing with complex and difficult situations in the future, the official said.
Overall, the addressing of local government debt issue is proceeding in an orderly manner in China, with risks generally kept under control.
Looking ahead, the ministry will work with relevant parties to further promote the implementation and effectiveness of the package of measures resolving local government debt risks, strictly supervise and hold accountable violations of laws and regulations on debt raising, focus on building a long-term mechanism to prevent and resolve implicit local government debt risks, accelerate the establishment of a government debt management mechanism that aligns with high-quality development, and gradually resolve local government debt risks in the process of high-quality development, the official said.