Fitch Downgrades China's Credit Rating Amid Fiscal Concerns

Fitch Ratings has taken a significant step by downgrading China's credit rating from "A+" to "A" this Thursday. The decision underscores growing apprehensions about the country's public finances and an escalating public debt trajectory, as China navigates through its economic transition.

Stable Outlook Despite Fiscal Challenges

Despite the downgrade, Fitch maintains a stable outlook for China, attributing it to the nation's economic resilience. However, the agency projects a concerning rise in China's debt-to-GDP ratio, expected to reach 68.3% in 2025 and 74.2% in 2026, up from 60.9% last year. This fiscal strain comes as China intensifies its fiscal stimulus measures to combat weak domestic demand, deflationary pressures, and the repercussions of new US tariffs.

Impact of US Tariffs on China's Economy

Fitch's report highlights the potential adverse effects of increased US tariffs on Chinese goods. "The prospective rise in the effective tariff rate under the newly-announced reciprocal tariff plan by the US administration goes beyond our baseline 35% effective tariff rate assumption," Fitch stated, pointing to uncertainties in economic and fiscal forecasts.