As the world’s second largest economy has been experiencing volatile market movements in recent weeks, credit rating agency Fitch said sharp declines do not signal a systemic risk neither for the economy, nor for the financial system in China.
According to Fitch, the sharp fall in stock prices and the precautionary measures taken by the Chinese government highlight “the relatively underdeveloped nature of the equity market.”
The rating agency argued that “ policy intervention raises questions about the pace of future financial reforms, while this underscores potentially significant operational risks for some financial institutions, especially brokers, which are directly involved in the equity market.”
Regarding China’s better than expected second quarter growth of 7 percent from Wednesday, Fitch said the growth rate supported the agency’s view that the real economic impact of equity market volatility will be minimal.
"Fitch does not expect the equity market correction to have a major impact on Chinese banks' balance sheets or pose a systemic risk to the banking sector. Banks are not allowed to lend directly to customers for margin lending," the agency added.
However, Fitch emphasised the importance of highlighting that “there may be risks related to the equity market sell-off that are not yet visible or exposed.”
Meanwhile, last week another major rating agency, Standard & Poor’s (S&P) sovereign rating managing director Moritz Kramer touched on the troubled Chinese economy warning that “the problems facing China were a bigger threat to the global economic outlook than events in Greece."