China's credit outlook turns negative

Company News

by Glenn Dyer

In a surprise announcement four months after Moody’s move, Fitch on Wednesday revised its outlook on China to negative, citing increasing risks to the country's public finance outlook from a slowing economy and its search for new ways to stimulate growth in the wake of the property crunch.

Fitch forecasted the general government deficit would rise to 7.1% of GDP in 2024 from 5.8% in 2023.

The ratings agency affirmed China's IDR (issuer default rating) at 'A+' with a negative outlook, indicating its concern about the country's public finance prospects despite no immediate threat of debt default, despite defaults occurring in the embattled property sector.

Fitch forecasted China’s economic growth would slow to 4.5% in 2024 from 5.2% last year, contrasting with the forecasts of Citi and the International Monetary Fund, both of which revised up their China forecasts.

“The outlook revision reflects increasing risks to China’s public finance outlook as the country contends with more uncertain economic prospects amid a transition away from property-reliant growth to what the government views as a more sustainable growth model,” Fitch said.

"Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective. Fitch believes that fiscal policy is increasingly likely to play an important role in supporting growth in the coming years, which could keep debt on a steady upward trend.

"Contingent liability risks may also be rising, as lower nominal growth exacerbates challenges to managing high economy-wide leverage,” Fitch noted.

In early December, Moody's had also cut China's credit outlook to negative, citing slowing economic growth and a crisis in its property sector.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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