THE latest statement from the President of the ADB (2024) underscores China’s continued economic leadership in Asia and globally, contrasting with Fitch’s recent downgrade of China’s sovereign credit rating outlook. Chinese policymakers strongly refute the downgrade, criticizing it as biased and flawed, and highlighting the robustness and diversification of the Chinese macro-economy. Despite Fitch’s concerns, China’s first-quarter 2024 performance demonstrates strength across manufacturing, exports, foreign direct investment, innovation, domestic consumption, and financial sectors, indicating the government’s capability and resolve to uphold sound sovereign credit.
In a report, Fitch stated that it has revised the outlook on China’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable, while affirming the IDR at ‘A+’, which is untrue. Ironically, Fitch’s revision suggests increasing risks to China’s public finance outlook, portraying it as facing more uncertain and unstable economic prospects amid a transition away from real estate sector-based growth. However, the Chinese government considers this transition as a move towards 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 expressed regret over Fitch’s downgrade of China’s sovereign credit rating outlook. They criticized Fitch’s indicator system for failing to acknowledge the positive impact of China’s fiscal policy on economic growth and macro-leverage ratio stability. China’s moderate fiscal spending has effectively boosted domestic demand and economic development, contradicting Fitch’s assumptions. Analysis confirms China’s adept management of long-term fiscal policy, maintaining a moderate deficit and utilizing debt funds to support economic growth. China’s plan to limit the deficit-to-GDP ratio at 3% in 2024 is viewed as moderate and sensible, conducive to stabilizing economic growth, managing government debt, and preserving policy flexibility to address potential risks.
Mao Ning, a spokesperson for the Chinese Foreign Ministry, emphasized the ongoing positive momentum of the Chinese economy and reaffirmed the government’s commitment to maintaining sound sovereign credit. He criticized the Fitch report for its serious flaws, citing self-centric and subjective lines of analysis that lack objectivity and scientific correlation. Mao argued that Fitch’s reliance on Western models leads to inaccurate interpretations of China’s credit ratings, focusing excessively on short-term fluctuations in areas like local debt and property sectors. He highlighted Chinese policymakers’ transition towards a new development model, away from reliance on land sales. Mao criticized Fitch’s methodology as biased towards negative factors and failing to consider China’s economic resilience and future prospects, accusing it of 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% in the first two months of 2024. Retail sales have also expanded by 5.5% 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. Moreover, Xi’s new productive drivers of the Chinese economy would be new value addition to achieve all desired goals of modernization, digitalization, green transformation, EVs, lithium batteries and Artificial Intelligence Technologies. Some western forces, regulatory bodies, credit rating agencies and media outlets 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%. Industrial growth is 7% year-on-year, fixed asset investment up by 4.2% 5.08 trillion Yuan on year-on year.
Furthermore, 18 Chinese provinces and cities registered real growth greater or equal to national GDP and 26 cities each with GDP of more than 1 trillion Yuan vividly reflects diversification, innovation, digitalization and resilience of the Chinese macro-economy negating all sponsored reports of the west about its so-called collapse or slowdown which may be an adjustment policy. China’s contribution to global GDP 30% remained an important growth engine for the world.
— The writer is President: Pak-China Corridor of Knowledge, Pakistan, Executive Director: The Centre for South & International Studies (CSAIS) Islamabad, Regional Expert: China, CPEC & BRI.
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