Fitch Lowers China's Rating Outlook On Risks To Public Finances

(RTTNews) - Fitch Ratings lowered China's rating outlook on Wednesday citing rising risks to public finance amid the economy transforming to a more sustainable growth path from its current property-reliant growth model.

China's sovereign rating outlook was downgraded to 'negative' from 'stable'.

Wide fiscal deficits along with the rising government debt over the past years eroded fiscal buffers from a ratings perspective. Moreover, the fiscal policy is set to play a key role in supporting growth over the coming years, which could lift debt upwards, Fitch said.

In addition, the rating agency also sees a possibility that contingent liability risks may also increase on lower nominal growth.

The credit ratings were affirmed at 'A+' as the economy still possess solid GDP growth prospects relative to peers and play an integral role in global goods trade, robust external finances and also reserve currency status of the yuan.

Fitch forecast general government deficit to widen to 7.1 percent of GDP this year from 5.8 percent in 2023. General government debt is projected to rise to 61.3 percent of GDP in 2024 from 56.1 percent last year.

The second-largest economy is expected to log a moderate 4.5 percent growth this year compared to 5.2 percent in 2023 due to the persistent property sector weakness and the subdued household consumption.

These headwinds were partially offset by the fiscal stimulus with external demand turning mildly supportive.

Regarding price pressures, Fitch said the economy is unlikely to face a prolonged period of deflation, with inflation of 0.7 percent by end-2024 and 1.3 percent by end-2025.