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Fitch Ratings Ltd. said it may reconsider China’s A+ sovereign credit score, adding to the growing pessimism toward the nation’s financial markets.
"We might think again, because the debt-to-GDP ratio is a little bit on the high side for a single ‘A’ credit,” if China extends its balance sheet to support the economy, James McCormack, global head of sovereigns, told Bloomberg TV.
While Fitch is not expecting such a move, an increase in debt in the corporate and banking sector could become "real liabilities for the government,” he said.
McCormack’s comments come with Fitch’s downgrade of the US credit rating earlier this month still reverberating round global markets. That reignited a conversation about the US government’s fiscal path and its impact on Treasuries and helped play a role in the recent rise in yields.
Over in China, global investors are rapidly losing their patience in the country’s fragile recovery, with recent economic data from retail sales to home prices disappointing.
Making the matter worse, one of country’s largest property developers is at risk of default and a financial conglomerate missed payments on investment products, stoking fears about possible contagion.
A large injection of short-term cash to China’s financial system on Wednesday and central bank interest-rate cuts on Tuesday have failed to restore optimism.
The onshore yuan is falling toward its weakest level in 16 years against the dollar, and the MSCI China Index of stocks is poised to erase gains seen since a key policy meeting in late July.
