Fitch says China’s regulation pledge could signal shift away from high growth targets

Fitch Ratings said on Thursday China’s renewed commitment to contain financial risks signals a possible shift away from high economic growth targets, though policymakers are likely to remain cautious about tightening too aggressively.

Chinese regulators and officials emphasized their commitment to tighter financial regulations at the recent National Financial Work Conference. The once-in-five-years meeting typically sets the tone for policy for the subsequent few years.

President Xi Jinping said at the conference that a new Financial Stability and Development Committee will be set up under the State Council, or cabinet, and the central bank will take on a bigger role in managing financial market risks.

But there is still uncertainty over whether the drive to address risks will continue to take priority if the economy slows, Fitch said.

“This could signal rising potential for a more decisive shift in policy focus away from hitting high growth targets, but there is still uncertainty over whether the drive to address risks will continue to take priority if the economy slows,” Fitch said in a statement.

The economy expanded a faster-than-expected 6.9 percent in the second quarter, setting China on course to comfortably meet its 2017 growth target of around 6.5 percent.

Tightening is likely to become more targeted as authorities try to limit the impact on economic growth, Fitch said.

China will be wary of triggering a liquidity crunch through regulatory tightening, making an abrupt clampdown on shadow banking activities unlikely, the ratings agency said.

Last week, Fitch maintained its A+ rating on China with a stable outlook, citing the strength of the country’s external finances and macroeconomic record.