By Marc Jones
LONDON (Reuters) - Fitch could cut China's A+ credit rating or stable outlook if Beijing reverts to the kind of debt-fuelled stimulus programmes it has used in the past, the firm's top sovereign analyst said.
China has pledged not to resort to massive stimulus to counter the effects of its trade war with the United States, but a fifth cut to banks' reserve requirements last week following some dire data has fanned speculation that it still could.
Fitch's head sovereign analyst James McCormack said his firm still expected Beijing to keep its pledge and stick to tackling high levels of corporate debt, but underscored the risks to the rating if authorities did reach for the stimulus levers.
"If the policy response to slowing growth was similar to what we saw around the time of the global financial crisis, then that would cause us to look again at the rating," McCormack told Reuters. "Because we think that would increase macroeconomic imbalances in China when debt levels in the corporate sector are already high."
All of the big three rating agencies Fitch, S&P Global and Moody's have "stable" outlooks on their equivalent A+/A1 China ratings, but Fitch is the only one not to have cut its rating in the last couple of years. https://reut.rs/2hlL7dT
China's response to the global financial crisis was not so much on-budget fiscal stimulus or interest rate cuts, but rather off-budget debt-funded spending by state-owned firms or local government financing vehicles, McCormack said.
Those would be those kind of measures that could trigger a cut but "it isn’t what we expect to happen (now)", he added.
"This time, we expect more on-budget policy measures such as tax cuts, which are already happening, and spending increases – if there are any – to be directly funded by (central) government."
Fitch said in its last formal review of China's rating in early December that its expects China's growth to slow to 6.1 percent this and next year from 6.6 percent in 2018.
(Reporting by Marc Jones; Editing by Alison Williams)