Fitch downgrades China's rating outlook to negative

The rating agency Fitch has downgraded China's rating outlook from "stable" to "negative", confirming the "A+" rating.

Fitch said that the downgrade of the outlook reflects the increasing risks faced by China's public fiscal outlook, as China faces a more uncertain economic outlook in the process of transforming from growth relying on real estate to a growth model that the government considers more sustainable. Fitch believes that fiscal policy is increasingly likely to play an important role in supporting growth in the coming years, thus keeping debt on a steadily rising trend.

Fitch pointed out that China's "A+" rating is supported by its huge and diverse economy, still stable GDP growth prospects, strong external financing, and the reserve currency status of the renminbi.

Fitch predicts that the proportion of China's overall government deficit to gross domestic product (GDP) will rise from 5.8% in 2023 to 7.1% in 2024. The ratio of the deficit to GDP in 2024 will reach the highest level since 8.6% in 2020.

Fitch expects China's economic growth rate in 2024 to slow from 5.2% in 2023 to 4.5%, due to the continued weakness of the real estate industry and the negative wealth impact brought about by the real estate adjustment, which leads to sluggish household consumption. Fitch does not expect there to be a prolonged deflation, and it is expected that the inflation rate will be 0.7% by the end of 2024 and 1.3% by the end of 2025.

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