Fitch recently downgraded its outlook on China’s credit rating from stable to negative, citing increasing risks to the country’s finances amidst economic challenges. The agency did not automatically downgrade China’s creditworthiness but noted that the chances have increased. Despite this, Fitch has kept its rating on Chinese sovereign bonds at A+. The revision reflects the uncertainties in China’s public finance outlook as it transitions away from property-reliant growth towards a more sustainable growth model, as per the government’s perspective. Fitch predicts the general government deficit to rise to 7.1% of GDP in 2024 from 5.8% last year, with this year’s deficit expected to be the highest since 2020 due to pandemic-related control measures.
China’s Finance Ministry expressed regret over the revision and stated that the agency’s methodology does not effectively reflect the positive role of fiscal policy in promoting economic growth. The ministry emphasized the importance of maintaining a moderate deficit and using debt funds efficiently to expand domestic demand, support economic growth, and maintain good sovereign credit in the long run. The fiscal budget deficit ratio for 2024 is set at 3%, described as moderate and conducive to stable economic growth. The ministry has also set a 5% economic growth target for this year, which it believes is realistic and in line with current conditions. Despite the downgrade, the ministry remains confident in the long-term positive trend of China’s economy and the government’s ability to maintain good sovereign credit.
The revision by Fitch follows a similar move by Moody’s in December, which also downgraded its outlook on China’s credit rating from stable to negative. Moody’s cited risks related to structurally lower medium-term economic growth and ongoing troubles in the property sector. These downgrades highlight the challenges China faces in maintaining economic stability and sustainable growth amidst shifting global dynamics. The Chinese government’s response emphasizes the importance of fiscal discipline and strategic debt management in supporting economic growth and ensuring the country’s long-term financial stability.
The downward revisions in China’s credit rating outlook by major agencies like Fitch and Moody’s underscore the need for the country to address its economic challenges and implement effective policy measures to support sustainable growth. The Chinese government’s commitment to maintaining moderate deficits, prudent debt management, and growth-oriented fiscal policies is crucial in navigating the uncertainties in the global economic landscape. Despite the revisions, China remains focused on achieving its economic targets and enhancing its sovereign credit profile through responsible financial management and strategic planning. The country’s ability to adapt to changing market conditions and implement reforms to address structural issues will be crucial in ensuring long-term economic stability and maintaining its position as a key player in the global economy.
