Fitch rejects China’s debt. Forecasts drop to “negative”

PECHINO – From “stable” to “negative”. The Fitch rating agency revises China’s outlook downwardsstating that the Beijing government risks accumulating debt in an attempt to get the economy out of a slowdown that has continued for many months, mainly due to the real estate crisis.

“The revised outlook reflects growing risks to China’s public finances as the country faces a more uncertain economic outlook. Fiscal policy is increasingly likely to play an important role in supporting growth in the coming years, which could keep the debt on a constant upward trend.”

Beijing quickly responded: “We regret Fitch’s cut of China’s credit outlook,” the Ministry of Finance said in a statement released minutes after the ratings agency’s announcement. “Their methods have failed to effectively and proactively reflect our efforts to promote economic growth.”

“I don’t think this will have a big impact on the market,” he told the agency Bloomberg Michelle Lam, economist at Societe Generale, said that the risk for investors deriving from the increase in Chinese debt “is that it slows down growth, not that it increases the risk of sovereign default”.

Financial markets remained indifferent: the yield on 10-year Chinese government bonds remained unchanged at around 2.29% and the yuan also remained stable.

China returns to growth, signs of confidence from industry and exports

by our correspondent Gianluca Modolo

01 April 2024

However, Fitch confirmed the rating at “A+”giving Beijing credit that the country has “a large and diversified economy,” underlining “its continued strong GDP growth prospects relative to its peers, its role in global merchandise trade, its solid finances external markets and the status of the yuan as a reserve currency.”

Fitch forecasts China’s economic growth will slow to 4.5% in 2024, from 5.2% last year, while the International Monetary Fund forecasts that China’s GDP will grow by 4.6% this year. The Beijing government has instead set the target “around 5%”.

However, there are encouraging signs for the Chinese economy. China’s manufacturing activity expanded at the fastest pace in 13 months in March. Recent positive data also regards exports (in January-February they increased by 7.1% compared to the previous year) and retail sales (+5.5% in the first two months of the year).