Debts
The American credit rating agency Fitch warns China of a possible downgrade of its credit rating. Large budget deficits and rising government debt threaten to tarnish Beijing’s reputation.
Fitch downgrades China’s credit outlook from stable to negative. This means that there could be a downgrade in China’s credit rating in the medium term. The Chinese Ministry of Finance calls the decision “regrettable”.
Fitch sees increasing risks for China to meet all credit obligations in the future. “Large budget deficits and rising government debts in recent years have affected China’s financial buffers,” the credit rating agency wrote in its report on Wednesday.
Rising debts
According to the smallest of the three major rating agencies, it is also “increasingly likely that fiscal policy will play an important role in supporting growth in China in the coming years, causing government debt to continue to rise steadily.”
“This does not mean that China will go bankrupt anytime soon, but it is possible to see polarization in some LGFVs (local government financing instruments in China, ed.), especially as the budgets of some provincial governments are in poor health,” it said read in the report.
China’s growth rate continues to slow
Fitch maintains China’s credit rating at ‘A+’ for the time being, the same level as Standard & Poor’s and Moody’s.
Fitch predicts that China’s economic growth would slow from 5.2 percent last year to 4.5 percent in 2024. That is slightly less than the 4.6 percent GDP growth expected by the International Monetary Fund.
China, the world’s second-largest economy, is struggling with, among other things, an ongoing crisis in the real estate sector, rising youth unemployment and weak global demand for the country’s many cheap manufactured goods.
