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April 17 (The following statement was released by the rating agency)
Slower Chinese economic growth in the first quarter of
2014 is in line with our forecast that real GDP growth will slow to 7%-7.5% this
year, Fitch Ratings says. We expect a continued, policy-led slowdown aimed at
curbing economic imbalances and containing leverage in the financial system.
China's GDP grew 7.4% in 1Q14, the National Bureau of Statistics said on
Wednesday, down from 7.7% a year earlier and the lowest reading since Q312.
Quarter-on-quarter growth was 1.4%, down from 1.8% in 4Q13.
Whether China can adjust to less credit-intensive growth and avoid a sharp
slowdown that endangered financial or social stability is central to its credit
profile. The authorities' commitment to reform and rebalancing, subject to the
constraint of maintaining full employment, is therefore a key consideration in
our ratings analysis and underpins our economic forecasts. Our affirmation of
China's 'A+' sovereign rating with Stable Outlook earlier this month reflected
our view that the mainland economy can navigate a structural adjustment without
economic, financial, or political instability.
Recent announcements by China's leadership are consistent with a continuing
commitment to rebalancing. For example, while a small stimulus package was
announced at the beginning of April, Premier Li Keqiang said last week that
"short-term fluctuations in growth" would not prompt a major stimulus of the
kind launched in response to the global financial crisis in 2008-2009.
While GDP growth has been below the five-year average growth rate of 8.9% for
the past couple of years, it remains substantially above the 'A' category median
of 3.3%. Our belief that China can achieve a smooth deceleration is bolstered by
the effective macroeconomic policy leavers at the authorities' disposal, such as
the ability to steer credit conditions (for example by varying the speed of
aggregate financing growth via injections of excess bank reserves). Tighter
monetary conditions that allowed interbank funding costs to spike last year also
contributed to macro level policy tightening, although they were aimed primarily
at reducing risks to financial stability.
Furthermore, China's closed capital account and largely domestically funded
financial sector make China less vulnerable to a rapid withdrawal of external
funding than several other emerging markets.
However, rebalancing remains at an early stage, and the labour market's
resilience could yet be tested as the process continues. Reversion to credit-led
and investment fuelled growth could exacerbate the economy's structural
weaknesses. The challenge of maintaining growth and employment while pursuing
rebalancing was illustrated in 2013, when investment grew faster than
consumption and the total stock of credit rose to about 217% of GDP, from 198%