Fitch downgrades outlook on China to negative

The ratings agency cites a struggling property sector and weak consumer spending
By RFA Staff
2024.04.10
Fitch downgrades outlook on China to negative A man walks in front of unfinished residential buildings at the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 15, 2021. Concerns about China's property sector have led to downgrades in the outlook on its credit rating.
Reuters

Fitch downgraded its outlook on China’s sovereign credit rating to negative Wednesday, citing growing risks to public finances as the country shifts away from its reliance on the flagging real estate market to a supposedly more sustainable growth model.

It said it expected the general government deficit to rise to 7.1% of GDP this year from 5.8% in 2023.

While the negative outlook means a downgrade is possible in the medium term the ratings agency reaffirmed the issuer default rating (IDR) at A+.

In December, the world’s largest ratings agency Moody’s downgraded its outlook on the country’s credit rating to negative, also expressing concerns about the struggling property sector.

“Fitch forecasts GDP growth to moderate to 4.5% in 2024, from 5.2% in 2023, due to persistent property sector weakness and subdued household consumption, resulting from negative wealth effects from the property correction and somewhat sluggish income growth,” Fitch said. 

“These headwinds are partly offset by fiscal stimulus, with external demand turning mildly supportive.”

China is targeting economic growth of around 5% this year, while the International Monetary Fund predicts GDP to increase 4.6%.

The government is trying to stimulate spending by encouraging manufacturers to upgrade equipment and the general public to tap into their savings to spend on cars and consumer electronics.

Economic indicators in the first two months of the year have surprised on the upside with industrial output, retail sales and exports beating economists’ forecasts.

China’s finance ministry criticized Fitch’s decision as “regrettable.”

“Fitch’s rating system has failed to effectively reflect the positive effects of China’s fiscal policies on boosting economic growth,” the ministry said in a statement carried by China’s official Xinhua news agency.

The ministry said the long-term positive outlook for the economy and the government’s ability to maintain sound sovereign credit were unchanged.

Edited by Elaine Chan

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