Fitch Downgrades China Credit Rating Amid Rising Debt Concerns

Fitch Downgrades China Credit Rating Amid Rising Debt Concerns

Sovereign Credit Downgrade

Global ratings agency Fitch has downgraded China’s sovereign credit rating, citing rapidly increasing government debt and risks to public finances. The rating was lowered from “A+” to “A,” marking a further deterioration in China’s credit standing.

Economic and Policy Context

The downgrade follows President Donald Trump’s imposition of sweeping tariffs on imports, including those from China. However, Fitch clarified that this move was not yet factored into its projections.

Rising Government Debt

Fitch attributed the downgrade to a sharp increase in China’s government debt, stating:

• Explicit local and central government debt is projected to rise to 68.3% of GDP in 2025 and 74.2% in 2026, up from 60.9% in 2024 and 37.9% in 2019.
• The general government deficit is expected to reach 8.4% of GDP in 2025, rising from 6.5% in 2024.

Local Debt and Fiscal Policies

China’s recent move to allow local governments to issue 10 trillion yuan ($1.37 trillion) in bonds to swap for hidden debt aims to reduce fiscal constraints and lower financing costs. However, Fitch noted that this would not alleviate the overall debt burden.

Need for Continued Stimulus

China is expected to maintain fiscal stimulus to counter weak domestic demand, rising tariffs, and deflationary pressures. In March, Beijing unveiled fiscal measures, including an increased budget deficit, to support its 5% growth target, which analysts view as ambitious.

Economic Growth Forecasts

Fitch projects that China’s GDP growth will slow to 4.4% in 2025, down from 5.0% in 2024, due to factors such as:

• A property sector downturn
• Weak household confidence
• Rising external risks

Impact of U.S. Tariffs

According to analysts at UBS:

• U.S. tariff hikes could reduce China’s 2025 export growth by 5 percentage points.
• The annual GDP growth rate could decline by 1.5 percentage points.
• China may need to expand fiscal policies by 1-1.5% of GDP to stabilize growth around 4%.
• Policy rate and reserve requirement ratio (RRR) cuts of 30-40 basis points may be expected from April-May.

China’s Response

China’s Ministry of Finance expressed strong opposition to Fitch’s downgrade, calling it biased and inaccurate. The ministry emphasized that the government retains ample policy tools and will adjust its strategies as needed to manage economic challenges.

“Fitch Downgrades China Credit Rating Amid Rising Debt Concerns” “Fitch Downgrades China Credit Rating Amid Rising Debt Concerns” “Fitch Downgrades China Credit Rating Amid Rising Debt Concerns”