A US-based rating agency, Fitch, downgraded its long-term perspective on China to negative, in the late hours of Tuesday, while maintaining the country’s A+ credit rating.
Fitch, the rating agency, attributed this adjustment to China’s shift away from growth driven by the property sector, which has introduced increased uncertainty.
Fitch predicted a rise in the general government deficit to 7.1% of GDP in 2024 from 5.8% in 2023, marking the highest level since 2020 when China’s stringent COVID measures had a significant impact on the economy.
“Fitch believes that fiscal policy is increasingly likely to play an important role in supporting growth in the coming years which could keep debt on a steady upward trend. Contingent liability risks may also be rising, as lower nominal growth exacerbates challenges to managing high economy-wide leverage,” the rating agency said in its press release.
Despite the revised outlook, Fitch affirmed China’s IDR rating at ‘A+’, suggesting a potential downgrade in the medium term.
The agency emphasized the probability of fiscal policy playing a crucial role in boosting growth in the coming years, potentially leading to a continuous increase in debt.
In response, China’s Ministry of Finance expressed disappointment over Fitch’s decision to downgrade the country’s credit outlook. China’s Ministry of Finance criticized Fitch’s assessment, arguing that it failed to recognize the positive impact of fiscal policies on economic growth.