The credit ratings agency Fitch downgraded its outlook on China’s credit rating Wednesday.
The agency released a statement citing “increasing risks to China’s public finance outlook” as its reason for cutting its outlook from stable to negative.
Fitch is predicting China’s government deficit will rise to 7.1% of gross domestic product this year, compared to the 5.8% mark from 2023. The projected deficit for 2024 will be the highest since 2020, when the government’s COVID-19 pandemic controls took a toll on the economy.
Policymakers in Beijing are struggling to steer the country’s economy back on track amid a downturn in the real estate sector triggered by the liquidation earlier this year of developer China’s Evergrande Group, which in 2021 defaulted on over $300 billion in debts.
"Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective," Fitch said in its statement.
Fitch’s downgrade follows a similar move in December by rival agency Moody’s. But Fitch continues to maintain China’s A+ rating on its sovereign bonds.
China’s finance ministry released a statement saying it regretted Fitch’s decision to downgrade its credit rating outlook. The ministry said the agency’s methodology failed to “effectively and proactively reflect the government’s efforts to promote economic growth.”
The ministry’s statement added that maintaining “a moderate deficit and making good use of valuable debt funds will lead to expanding domestic demand, supporting economic growth, and ultimately maintaining good sovereign credit.”
Some information for this report came from The Associated Press, Reuters, Agence France-Presse.
