Fitch downgraded its outlook on China’s credit rating from stable to negative due to increasing risks to its finances amidst economic challenges. Despite the downgrade, the ratings agency has kept China’s sovereign bonds rating at A+. The revision reflects the country’s uncertain economic prospects as it transitions to a more sustainable growth model away from property-reliant growth. Fitch predicts that the general government deficit will rise to 7.1% of GDP in 2024, compared to 5.8% last year, with this year’s deficit expected to be the highest since 2020 due to pandemic-related controls.
The Chinese Finance Ministry expressed regret over the revision, stating that the Fitch methodology fails to effectively reflect the positive role of fiscal policy in promoting economic growth. The ministry believes that maintaining a moderate deficit and responsibly using debt funds will expand domestic demand, support economic growth, and help maintain good sovereign credit in the long run. The fiscal budget deficit ratio for 2024 is set at 3%, described as moderate and conducive to stable economic growth. The ministry has also targeted 5% economic growth for this year, aligning with realistic conditions and expressing confidence in the long-term positive trend of China’s economy.
Moody’s also downgraded its outlook on China’s credit rating from stable to negative in December, citing risks related to persistently lower medium-term economic growth and ongoing troubles in the property sector. Despite these challenges, China’s government remains determined to maintain good sovereign credit and uphold the country’s economic stability. The government believes that a moderate deficit and effective use of debt funds will play a crucial role in supporting economic growth and maintaining financial health.
The Chinese government’s response to the credit rating downgrades highlights its commitment to fiscal responsibility and economic stability. Despite external challenges and uncertainties, China remains focused on sustaining its positive economic trajectory and promoting sustainable growth. By emphasizing the importance of responsible fiscal policies and the positive impact of government spending on economic development, China aims to address the concerns raised by ratings agencies and strengthen its position in the global financial market.
As China continues to navigate economic challenges and structural changes, it faces pressure to adapt its growth model and address risks to its financial stability. The government’s determination to maintain good sovereign credit and promote economic growth underscores its proactive approach to addressing economic challenges and ensuring long-term sustainability. By prioritizing fiscal prudence and strategic use of debt funds, China aims to bolster domestic demand, support economic growth, and solidify its position as a key player in the global economy.
