Fitch Downgrades China's Credit Rating

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

Stable Outlook Amid Fiscal Challenges

Despite the downgrade, Fitch maintains a stable outlook for China, acknowledging the nation's economic resilience. However, the agency projects China's debt-to-GDP ratio to climb to 68.3% by 2025 and further to 74.2% by 2026, up from 60.9% in the previous year. This fiscal strain comes as Beijing intensifies efforts to stimulate the economy, grappling with weak domestic demand, deflationary pressures, and the repercussions of new US tariffs.

External Pressures and Economic Forecasts

"The escalation in US tariffs on Chinese goods is expected to dampen growth," Fitch noted. The agency highlighted the uncertainty surrounding the impact of the newly announced reciprocal tariff plan by the US, which surpasses their initial 35% effective tariff rate assumption, potentially skewing economic and fiscal forecasts.