China rejects Fitch Ratings’ fiscal outlook downgrade
BANGKOK — China’s Finance Ministry denounced a report by Fitch Ratings that kept its sovereign debt rated at A+ but downgraded its outlook to negative, saying Wednesday that China’s deficit is at a moderate and reasonable level and risks are under control.
Risks to China’s public finances are rising, Fitch said, as Beijing works to resolve mounting local and regional government debts and to shift away from heavy reliance on its troubled property industry to drive economic growth.
But while slower growth is adding to the challenges of coping with heavy borrowing, Fitch said it kept China’s A+ rating due to its “large and diversified economy,” its vital role in global trade and its huge foreign exchange reserves.
The Finance Ministry said it was a “pity” that Fitch had downgraded its sovereign debt and faulted its methods, saying it had failed to take into account Beijing’s moves toward “appropriately intensifying, improving quality and efficiency” of its government spending.
“In the long run, maintaining a moderate deficit and making good use of precious debt funds will help expand domestic demand, support economic growth, and ultimately help maintain good sovereign credit,” the ministry said.
“Overall, our country’s local government debt resolution work is progressing in an orderly manner and risks are generally controllable,” it said.
Fitch’s report noted that China’s
general government deficit was forecast to rise this year to 7.1% of its GDP, up from 5.8% in 2023. The median for countries with an “A” rating is 3.0%, it said. China’s average deficit to GDP ratio averaged 3.1% in 2015-2019 but jumped to 8.6% in 2020, during the COVID-19 pandemic.
Tax relief measures and weaker property investments, which are usually a main source of local tax revenue, have eroded the government’s capacity to collect tax revenues to offset higher spending, the report said.
Fitch forecasts that China’s economy will expand at a 4.5% annual rate this year, down from 5.2% last year, due to the downturn in the property sector and lackluster consumer spending, though it said higher government spending is likely to help make up for some of that weakness.
While the government has moved to support some property developers struggling to repay their debts after a crackdown on
excessive borrowing, analysts have warned that the financial troubles are now rippling across construction companies and other industries linked to real estate.