Fitch Ratings Sees China Maintaining Status Quo

     BEIJING (MNI) - The most likely outcome from China's 19th Communist Party

Congress, which starts Wednesday, is continuance of the economic policy status

quo, with the government maintaining high growth targets, gradually implementing

supply-side reforms and stabilizing debt levels, Fitch Ratings said in a report

on Tuesday. 

     Fitch said the congress could be a "platform for stronger implementation"

of President Xi Jinping's reform agenda, so long as he consolidates power as

expected. 

     "Under this scenario, policy would focus on addressing economic imbalances

and excessive leverage, allowing the market to play a more important role in the

economy, and taking steps to boost productivity, particularly in the state-owned

sector," the Fitch report said. "We believe such a shift would reduce

medium-term risks to financial stability and lift China's long-term growth

prospects."

     The Fitch report said that China's economic stabilization measures had been

successful, but that if they are to continue, the government must accept a more

pronounced slowdown in economic growth than its medium-term targets imply. This

is unlikely, the report said, as it would risk missing China's "ultimate policy

goal" of building a "moderately prosperous society" by 2020.

     Given this goal, the government is likely to keep its high annual growth

targets of above 6% GDP, with the result that "deleveraging is likely to be

delayed at least for the next few years," and "reform of state-owned enterprises

is also likely to remain slow."

     Adherence to the GDP targets, Fitch said, will also result in "further

risks to long-term macroeconomic and financial stability."

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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