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According to Fitch Ratings, China’s National People’s Congress restrained approach to policy stimulus is likely to help contain pressure on the country’s sovereign rating.

Key takeaways

“The Chinese government will adopt a more flexible approach in the remainder of 2020 towards macroeconomic policy goals than in the recent past, without an explicit growth target and with a stimulus package that relies more on fiscal measures than large-scale credit loosening.

This course may support the economic recovery and curb the build-up in financial sector risks, thereby containing pressure on China’s sovereign rating.

However, much will depend on which of the government’s competing priorities – socioeconomic goals versus medium-term financial stability – are given precedence.

The government’s less rigid approach was highlighted by its ditching of the traditional annual target for real GDP growth.

Our forecast is above the government’s headline fiscal deficit target of 3.6% in 2020 (from an outturn of 2.8% in 2019), partly because we include the large amount of fiscal easing that will be channeled through the budgets of local government-managed funds.”