Fitch revises China's credit outlook to negative

Fitch Ratings has revised China's excellent credit rating outlook to negative, indicating challenges for the second-largest economy.

This decision, which was announced on Tuesday, reflects concerns over China's public finances due to uncertainty surrounding the country's transition to new growth models.

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It is estimated by Fitch that China's general government deficit will increase to 7.1 per centof GDP in 2024, up from 5.8 per centin 2023.

This projection points out the highest deficit level since 2020 when Beijing's COVID-19 measures impacted the economy severely.

Regardless of the negative outlook, the agency kept China's Issuer Default Rating (IDR) at 'A+', indicating a relatively strong affluence.

The agency warned of the possibility of a downgrade over the medium term if the economic situation goes downhill further.

Fitch's prediction also indicates a slowdown in China's economic growth, with an expected growth rate of 4.5 per cent in 2024 compared to 5.2 per cent in 2023.

This projection contrasts with more optimistic forecasts from other institutions such as Citi and the IMF, which altered their forecasts upward.

China's economic indicators in the first two months of 2024 showed strength, with factory output, retail sales, exports, and consumer inflation exceeding expectations.

These positive developments have given early support for Beijing's ambitious goal of achieving 5.0 per cent GDP growth in 2024, although analysts remain alert during the transition to a more sustainable growth model.

China's Ministry of Finance has expressed regret over Fitch's ratings decision.

This negative outlook from Fitch follows a similar warning from Moody's in December. Moody's cited concerns over the costs associated with bailing out local governments and state-owned enterprises, as well as efforts to address the property crisis.

(With inputs from Reuters)