China's Credit Rating Downgraded Amid Fiscal Challenges

In a significant move, Fitch Ratings has downgraded China's credit rating from "A+" to "A" this Thursday. The decision underscores growing concerns over the country's public finances and an escalating public debt trajectory, as China navigates through its economic transition.

Stable Outlook Despite Rising Debt

The agency maintains a stable outlook for China, highlighting the nation's economic resilience in the face of mounting fiscal pressures. However, projections indicate a worrying trend: the debt-to-GDP ratio is expected to climb to 68.3% in 2025 and 74.2% in 2026, up from 60.9% last year.

External Pressures and Fiscal Stimulus

Amid weak domestic demand and deflationary pressures, Beijing's increased fiscal stimulus efforts come at a critical time. The recent announcement of US tariffs on Chinese goods adds another layer of complexity, with Fitch noting the potential for these measures to exacerbate economic and fiscal challenges.

"The impact of the US's newly-announced reciprocal tariff plan remains uncertain, but it undoubtedly introduces downside risks to our economic and fiscal forecasts," Fitch stated, pointing to the broader implications of escalating trade tensions.