Fitch Revises China’s Credit Rating Outlook to Negative Amid Growing Uncertainty in Sustainable Model Transition

In March 2024, an aerial view of Hangzhou, China showed residential buildings under construction. This came as Fitch, a ratings agency, revised its outlook on China’s sovereign credit rating to negative. The agency cited risks to public finances due to the uncertainty in the country’s shift to new growth models. Fitch predicted that the general government deficit would rise to 7.1% of GDP in 2024, the highest since 2020 when strict Covid measures affected the economy.

Even though Fitch lowered its outlook and suggested a possible downgrade in the medium term, it confirmed China’s IDR rating at “A+.” The agency also forecasted that China’s economic growth would slow to 4.5% in 2024 from 5.2% the previous year, which contrasted with Citi and the International Monetary Fund’s upward revisions of their China forecasts. Despite this, China’s factory output, retail sales, exports, and consumer inflation indicators have been better than expected in early 2024.

Fitch mentioned that the outlook revision was due to the increasing risks to China’s public finance outlook as it navigates through more uncertain economic prospects during a transition from property-reliant growth to a more sustainable model as viewed by the government. The China finance ministry expressed regret over Fitch’s ratings decision while Moody’s also warned in December of a possible downgrade to China’s credit rating, mentioning the costs of bailing out local governments and state-owned firms as well as controlling the property crisis.