Fitch cuts China credit rating on debt risks amid trade tensions

Global ratings agency Fitch on Thursday downgraded China's sovereign credit rating, citing expectations of a continued weakening of public finances and rapidly rising debt.

 

The downgrade came a day after President Donald Trump imposed sweeping tariffs on imports from US trading partners, with China among the hardest-hit, though Fitch said his move had not yet been incorporated into its forecasts.

 

Fitch cut China's long-term foreign currency rating by one notch to "A" from "A+", one year after it downgraded its outlook on China's credit rating.

 

"The downgrade reflects our expectations of a continued weakening of China's public finances and a rapidly rising public debt trajectory during the country's economic transition," Fitch said in a statement.

 

"We expect the government debt/GDP to continue its sharp upward trend over the next few years, driven by these high deficits, ongoing crystallisation of contingent liabilities and subdued nominal GDP growth."

 

Fitch expects China's general government deficit to rise to 8.4 per cent of GDP in 2025, from 6.5 per cent in 2024.

 

China will have to sustain fiscal stimulus to support growth amid subdued domestic demand, rising tariffs and deflationary pressures, which will keep fiscal gaps high, it said.

 

In April 2024, Fitch cut its outlook on China's sovereign credit rating to negative, citing risks to public finances as the economy faces increasing uncertainty in its shift to new growth models.

 

China's finance ministry said in a statement that Beijing "deeply" regrets and does not recognise Fitch downgrading, adding that the decision "is biased and cannot fully and objectively reflect the actual situation in China".