China’s Foreign Currency Issuer Default Rating Revised to Negative by Fitch Ratings
In a bold move, Fitch Ratings has revised China’s long-term foreign currency issuer default rating from stable to negative, citing increased uncertainty surrounding its economic growth. This shift reflects the growing risks to China’s public finance outlook as the country faces a future filled with economic unpredictability.
Fitch’s Contrasting Outlook on Global Economic Powerhouses
This change in outlook for China stands in stark contrast to Fitch’s assessment of other global economic powerhouses. While the US retained its long-term foreign-currency issuer default rating of “AA+” with a stable outlook, Fitch also revised the UK’s credit outlook from negative to stable, affirming its issuer default rating at “AA-.”
Factors Behind Fitch’s Decision
Fitch’s report highlighted the factors contributing to the revision of China’s outlook, stating, “Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective.” The agency believes that fiscal policy will play a crucial role in supporting growth in the coming years, potentially leading to a continuous increase in debt levels.
Concerns Over China’s Economic Future
Despite affirming China’s actual issuer default rating at “A,” Fitch expressed concerns over the country’s general government deficit, which is projected to rise to 7.1 percent of GDP in 2024. Additionally, China’s GDP growth is expected to slow down to 4.5 percent in 2024, influenced by weaknesses in the property sector and subdued household consumption.
China’s Response to Fitch’s Decision
In response to Fitch’s negative outlook, China’s Finance Ministry criticized the agency for failing to acknowledge the long-term benefits of the country’s fiscal policy adjustments. The ministry emphasized their commitment to maintaining a good sovereign credit rating by managing deficits appropriately, utilizing debt proceeds to boost domestic demand, and supporting economic growth.
In conclusion, Fitch’s decision to revise China’s foreign currency issuer default rating underscores the challenges and uncertainties facing the world’s second-largest economy as it navigates through a complex economic landscape.