Well-known Chinese financial news site Caixin recently reported that Fitch Ratings just released its special report on China’s sovereign rating. After both S&P and Moody’s downgraded China’s outlook, Fitch kept its China rating unchanged. However, Fitch’s report pointed out that the Chinese economy does have structural risks. China will suffer the burden of high debts. The Chinese economy currently has had a high leverage ratio, which the indicator of “Aggregate Financing to the Real Economy” demonstrated. According to China’s official numbers, it reached 198 percent of the total GDP. Fitch expressed the belief that the number in reality might be closer to 250 percent. Fitch leaves the current China rating unchanged based on the fact that China still maintains a high level of foreign exchange reserve, but the key factor that impacts the rating is how China plans to conduct its structural reform, which should lead to sustainability. The Fitch report cautioned that the Chinese government’s strategic roadmap for its structural reform remains unclear.
Source: Caixin, April 6, 2016