The aerial view captures residential buildings under construction in Hangzhou, China on March 15, 2024. Ratings agency Fitch recently revised its outlook on China’s sovereign credit rating to negative. This was due to the risks to public finances as the country navigated increasing uncertainty in transitioning to new growth models.
Fitch predicted that the general government deficit would rise to 7.1% of GDP in 2024, up from 5.8% in 2023. Despite the negative outlook, the agency maintained China’s IDR rating at “A+.”
Despite the challenges, China’s factory output and retail sales exceeded expectations in January-February. This, alongside better-than-expected exports and consumer inflation indicators, provided an early indication of China’s potential to reach its 5.0% GDP growth target for 2024.
In response to Fitch’s ratings decision, China’s finance ministry expressed regret. Moody’s had also issued a downgrade warning in December, citing concerns related to bailing out local governments and state firms and controlling the property crisis. While Fitch’s forecast was more conservative than other entities like Citi and the IMF had revised their China forecasts upwards, it is clear that there are growing concerns about the country’s economic future and its ability to sustain high levels of debt growth without putting further strain on public finances.
