Fitch warns of ratings cut for China if data revisions prove major

Fitch Ratings on Tuesday warned that it would take ratings action against Chinese local governments if revisions to their fiscal data were significant after recent reports on fake economic data deepened concerns about governance and oversight.
 

Local and regional governments in China have long been suspected of cooking up numbers. Blame is often put on ambitious local officials trying to brighten their career prospects by delivering stellar work reports.
 

The agency’s comments come after the autonomous region of Inner Mongolia earlier this month said its fiscal revenue for 2016 ought to be 26 per cent less than initially stated.
 

Fitch reacted by downgrading its internal assessment of the creditworthiness of the northern Chinese region. It also cut the ratings on the senior unsecured bonds due 2020 issued by Inner Mongolia High-Grade Highway Construction and Development to BBB- from BBB, with a negative outlook. Local and regional governments globally do not have internationally accepted accounting policies. In China, Fitch relies on fiscal data from provincial and local administrations.
 

Recent falsification by provincial governments may highlight shortcomings in the auditing process, particularly in terms of central government oversight, Fitch cautioned.

“We would expect recent data manipulation problems to prompt a focus on tighter supervision, including stronger and more transparent reporting requirements and stricter disciplinary measures to discourage falsification,” it said.