Recently, officials of the Ministry of Finance answered questions from journalists on Fitch’s decision to lower China’s sovereign credit rating outlook.

　　Question: On April 10, Fitch International Credit Rating Company released a report maintaining China's sovereign credit rating unchanged but adjusting the rating outlook from "Stable" to "Negative”. What is the Ministry of Finance's view on this?

　　Answer: We are disappointed with Fitch’s decision to downgrade the outlook of China's sovereign credit rating. We had a lot of in-depth communication with Fitch's rating team in the early stages, and the report partly reflected the views of the Chinese side. However, judging from the results, the indicator system of Fitch's sovereign credit rating methodology fails to effectively reflect, in a forward-looking manner, the positive effects of the fiscal policy of "moderately increasing the strength, improving the quality and efficiency" on promoting economic growth and further stabilizing the macro leverage ratio.

　　In the long run, our fiscal policy will help maintain good sovereign credit by keeping deficit at an appropriate size, utilizing proceeds from debt issuance to expand domestic demand, and supporting economic growth.

　　The Chinese government has always insisted on taking into account the multiple objectives of supporting economic development, preventing fiscal risks and realizing fiscal sustainability. It has made scientific and reasonable arrangements for the size of deficits according to changes in the situation and the needs and possibilities and has kept the deficit rate at a reasonable level.

　　The planned deficit rate of 3% for 2024, on the whole, is moderate and reasonable, is conducive to stabilizing economic growth, better controlling government leverage, and reserving policy space to cope with challenges and risks that may arise in the future.

　　Looking back to 2023, it is encouraging to see that China's GDP grew by 5.2%, contributing more than 30% of the global economic growth. Setting an expected target growth rate of around 5% for this year aligns with practical conditions and development needs, conveying determination and confidence in high-quality development. The long-term positive trend of China's economy remains unchanged, as does the Chinese government's ability and determination to maintain good sovereign credit.

　　Question: Fitch is highly concerned about fiscal sustainability and has raised concerns about rising risks from fiscal deficits, local government debt, financing vehicle debt, etc. Could you please introduce your work and considerations in this regard?

　　Answer: Just now, as I talked about, maintaining an appropriate level of fiscal deficit is conducive for government debt financing to play a positive role and maintain the necessary support for high-quality economic and social development. The national fiscal deficit arranged for 2024 is 4.06 trillion Yuan, an increase of 180 billion Yuan from last year, and the 2024 deficit rate target is 3%, the same as last year. Such arrangement is conducive to maintaining the necessary levels of expenditure, giving full play to the counter-cyclical adjustment of finance, stabilizing and boosting the confidence of the market, and is also conducive to integrating development and security, guarding against the risk of government debt, and leaving space for dealing with complicated situations in the future.

　　In recent years, the Ministry of Finance, together with other ministries and agencies, has resolutely implemented the decision-making and deployment of the Central Committee of the Chinese Communist Party, put risk prevention and the promotion of sustainable financial development in a prominent position, introduced a series of policies and measures, continuously improved the management of local governments' statutory debts, and actively and steadily resolved the risks of local governments' implicit debts. Relevant departments, local party committees, and governments at all levels have increased their efforts, taken more practical measures, and achieved positive results.

　　The Ministry of Finance has allocated refinancing some bond quotas to local governments and allowed them to refinance some existing debt while staying within their borrowing limit. We are supporting localities, especially areas with high debt risks, in resolving hidden debts of financing vehicles and cleaning up government arrears owed to enterprises, etc., so as to alleviate debt repayment burden, including the burden to pay off interest. In accordance with the principle that “the province bears the primary responsibility, and cities and counties do their best to resolve their debt", localities are coordinating all kinds of resources, designing debt resolution programs, and implementing specific measures one by one. Through the concerted efforts of all parties, local debt risk has been alleviated. The payment of principal and interest on local government statutory debts has been effectively ensured, and the scale of hidden debt has gradually declined; positive progress has been made in settling debts owed by the government to enterprises, and the number of local financing vehicles has been reduced. Overall, China's local government debt resolution work is progressing in an orderly manner, and the risk is generally controllable.

　　Next, the Ministry of Finance will firmly implement the decision-making and deployment of the Central Committee of the Chinese Communist Party, strengthen the governance, take both immediate and medium-to-long-term measures and address the symptoms and the root causes of the problem. The Ministry of Finance will work together with the relevant parties to continuously strengthen the management of statutory debt of local governments, further promote the implementation of the package of debt resolution solutions, strictly supervise and investigate the problem of illegal and illegitimate debt financing, strive to build long-term mechanisms for preventing and resolving the risk of hidden debt, and accelerate the establishment of government debt management mechanisms compatible with high-quality development, and gradually resolve local government debt risks while pursuing high-quality development.