Fitch downgrades China’s credit rating, cites debt, economic risks

Global ratings agency Fitch downgraded China’s sovereign credit rating on Thursday, citing concerns over “a continued weakening” of public finances and a “rapidly rising public debt trajectory” amid the country’s economic transition.

The downgrade, which lowered China’s long-term foreign currency rating to “A” from “A+”, comes just one day after President Trump imposed sweeping tariffs on imports from US trading partners, including China. However, Fitch noted that the impact of these tariffs had not yet been incorporated into its forecasts.

“The prospective rise in the effective tariff rate under the newly-announced reciprocal tariff plan by the US administration goes beyond our baseline 35% effective tariff rate assumption creating downsides for our economic and fiscal forecasts, though the impact remains uncertain.”Fitch said in a statement. Despite this, Fitch acknowledged that China’s economy is more resilient to direct US tariffs compared to President Trump’s first term, due to the country’s more diversified export markets. Still, the broader global slowdown induced by rising tariffs remains a significant concern.

Fitch’s downgrade follows its decision one year ago to revise China’s credit outlook. The agency now forecasts China’s GDP to grow by 4.4 per cent in 2025, down from 5.0 per cent in 2024, as domestic challenges, particularly in the property sector and consumption, persist, compounded by rising external risks. Fiscal stimulus is expected to play a key role in supporting growth.

Fitch also warned that China’s government debt/GDP to continue its sharp upward trend over the next few years, driven by these high deficits, ongoing crystallisation of contingent liabilities and subdued nominal GDP growth.” China’s general government deficit is projected to rise to 8.4 per cent of GDP in 2025, up from 6.5 per cent in 2024.

The agency forecast that CPI inflation would increase to 0.9 per cent by the end of 2025, though the producer price index is expected to remain negative this year. Fitch added that a gradual recovery in domestic demand, aided by policy easing, would help improve price dynamics.

Fitch concluded that China will need to sustain fiscal stimulus to support growth amid subdued domestic demand, rising tariffs, and ongoing deflationary pressures, which are expected to keep fiscal gaps wide.

Attribution: Amwal Al Ghad English