Search
EN Down
Language
Hi, user_no_name
Live Chat

Fitch cuts China debt outlook to negative citing economic uncertainty

 

Fitch cuts China debt outlook to negative citing risks to public finances 

On Wednesday, Fitch Ratings revised its outlook on China's sovereign credit rating from stable to negative, citing increasing risks to the nation's public finances amid increasing economic uncertainty as it attempts to transition to new growth models.  

The adjustment echoes a similar move by Moody's in December, highlighting the challenges Beijing faces in its efforts to spur a sputtering post-pandemic economy of the world's second-largest economy with fiscal and monetary support. 

Gary Ng, Asia-Pacific senior economist at Natixis, commented on the downgrade to Reuters on Wednesday: 

"Fitch’s outlook revision reflects the more challenging situation in China’s public finance regarding the double whammy of decelerating growth and more debt. This does not mean that China will default any time soon, but it is possible to see credit polarization in some LGFVs (local government financing vehicles), especially as provincial governments see weaker fiscal health." 

 

Choose your points of movement

Сalculate your hypothetical P/L (aggregated cost and charges) if you had opened a trade today.

Market

Shares Search
Shares
Index
Commodity
Bonds
Crypto
ETFs
Currency

Instrument

Search
Clear input
Occidental
Prosus N.V.
Porsche AG
Hermes
CAT
Thermo Fisher
Nikola Corporation
Tilray
Shell plc (LSE)
Skillz Inc
Iberdrola
DeltaAir
CrowdStrike Holdings
Golar LNG
Applied Materials
Snowflake
Royal Bank Canada
Amazon.com
Spotify
Exxon Mobil
CCB (Asia)
McDonald's
Campari
GameStop
Netflix
ON Semiconductor
Costco
Dave & Buster's
Delivery Hero SE
LUCID
Continental
SunPower
Zoom Video Communications
Schlumberger
Virgin Galactic
Upwork Inc.
Cameco
JP Morgan
Fuelcell
Rivian Automotive
XPeng Inc
Wal-Mart Stores
Trade Desk
Blackstone
Vodafone
Aptiv PLC
L'Oreal
Target
Rio Tinto
Sartorius AG
British American Tobacco
Qorvo
ASOS
Cisco Systems
Nel ASA
Arista
Airbus
Apple
Pfizer
AMC Entertainment Holdings
ASML
Hubspot
Teladoc
Starbucks
SMCI
Canopy Growth
Wish.com Inc
Lockheed Martin
ProSiebenSat.1
IAG
AbbVie
Marston's
Baidu
Teleperformance
Norwegian Air Shuttle
Airbus Group SE
HSBC HK
Block
Annaly Capital
Abbott
LVMH
American Express
Novavax
GoPro
Siemens
Total
SIG
Pinterest Inc
Taiwan Semi
Etsy
Amgen
SONY
3D Systems
UPS
Yandex
BlackBerry
Gen Digital Inc
Xiaomi
Quanta Services
Unity Software
NVIDIA
Anglo American
Palantir Technologies Inc
Fresnillo
Deere
Rolls-Royce
Porsche
Uber
Vir Biotechnology
American Airlines
ROBLOX Corp
Macy's
FirstRand
easyJet
DISNEY
Aurora Cannabis Inc
BP
Adidas
Boeing Co
Vonovia
Coca-Cola Co (NYSE)
Home Depot
General Electric
Coinbase Inc
ALIBABA HK
Philip Morris
General Motors
PayPal
UniCredit
II-VI
BASF
Kraft Heinz
Alphabet (Google)
Palo Alto Networks
Evraz
Plug Power
Li Auto
Oracle
Roku Inc
UiPath Inc
Upstart Holdings Inc
F5 Networks
Infinera
Inditex
ZIM Integrated Shipping Services Ltd
Deutsche Bank
Hammerson
IBM
JD.com
Barrick Gold
TUI AG (LSE)
Lemonade
MerckCo USA
Infosys
Invesco Mortgage
Comcast
Santander
Accenture
Anheuser-Busch Inbev
Visa
Mastercard
Ozon
T-Mobile
SAP
Wayfair
Beyond Meat
Kuaishou
CarMax
Tesla
Lyft
Medtronic
Adobe
Morgan Stanley
Workday Inc
Blackrock
Vipshop
Meta (Formerly Facebook)
Linde PLC
Micron
Lululemon
Ceconomy
Chipotle
Gilead
Avacta
Naspers
Bristol Myers
Samsung
The Cheesecake Factory
Glencore plc
British American Tobacco
ChargePoint Holdings Inc
Twilio
Intel
Lloyds
CNOOC
Electrolux
Wells Fargo
Sea
PG&E
Fedex
Citigroup
Peloton Interactive Inc.
eBay
Microsoft
JnJ
Bilibili Inc
Trump Media & Technology Group
AIA
Nasdaq
Air France-KLM
Allianz
Lithium Americas Corp
Procter & Gamble
Qualcomm
AMD
New Oriental
MercadoLibre.com
Mondelez
Lumentum Holdings
Two Harbors Investment aration
AstraZeneca
Norwegian Cruise Line
Unilever
GoHealth
PepsiCo
Barclays
PETROCHINA
Goldman Sachs
Eli Lilly
HSBC
Cellnex
Berkshire Hathaway
Jumia Technologies
HDFC Bank
RTX Corp
Bayer
Bank of America
Chevron
ADT
DoorDash
Marriott
Nike
AT&T
GSX Techedu
Robinhood
Telecom Italia
Deliveroo Holdings
TUI
Freeport McMoRan
Toyota
BioNTech
Airbnb Inc
Alibaba
Verizon
Nio
Eni
Ford
Hanesbrands
Volkswagen
UnitedHealth
Shopify
China Life
Snap
Christian Dior
Conoco Phillips
Lufthansa
Tencent
Moderna Inc
Salesforce.com
Broadcom
Diageo
Toro
Cinemark

Account Type

Direction

Quantity

Amount must be equal or higher than

Amount should be less than

Amount should be a multiple of the minimum lots increment

USD Down
$-

Value

$-

Commission

$-

Spread

-

Leverage

-

Conversion Fee

$-

Required Margin

$-

Overnight Swaps

$-
Start Trading

Past performance is not a reliable indicator of future results.

All positions on instruments denominated in a currency that is different from your account currency, will be subject to a conversion fee at the position exit as well.

 

Chinese economy attempting to find its footing 

Fitch projects a rise in China's combined central and local government debt, expecting it to increase to 61.3% of the gross domestic product (GDP) in 2024, up from 56.1% in 2023 — a clear deterioration from the 38.5% recorded in 2019.  

The agency also anticipates the general government deficit, which covers infrastructure and other fiscal activities beyond the primary budget, to escalate to 7.1% of GDP in 2024 from 5.8% in 2023. This would be the highest deficit since 2020, when stringent COVID-19 restrictions weighed heavily on the Chinese economy

Despite lowering its outlook, Fitch maintained China's issuer default rating at 'A+', its third-highest grading, suggesting that a downgrade could occur in the medium term.  

S&P, the other major global ratings agency, assigned China an 'A+' rating, on par with Moody's 'A1' rating. 

The ratings warnings come despite early signs that the Chinese economy is finding its footing. China’s factory output and retail sales exceeded forecasts in January-February, following better-than-expected exports and consumer inflation figures. 

This data has increased Beijing’s hopes that it can achieve what analysts call an ambitious GDP growth target of around 5% for 2024. 

Economic growth in China is forecasted by Fitch to decelerate to 4.5% in 2024 from 5.2% in the previous year, slightly below the International Monetary Fund's projection of 4.6%. 

"The outlook revision reflects increasing risks to China's public finance outlook as the country contends with more uncertain economic prospects amid a transition away from property-reliant growth to what the government views as a more sustainable growth model”, Fitch said. 

"Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective," the agency added. "Contingent liability risks may also be rising, as lower nominal growth exacerbates challenges to managing high economy-wide leverage”. 

 

Downgrade reflects “fundamental concern” over China’s fiscal health 

In its fiscal strategy, China aims to maintain a budget deficit of 3% of GDP, down from the revised 3.8% last year.  

It also plans to issue 1 trillion yuan ($138.30 billion) in special ultra-long term treasury bonds, which will be excluded from the budget calculations. The quota for special bond issuances by local governments is set at 3.9 trillion yuan, an increase from 3.8 trillion yuan in 2023. 

China's debt-to-GDP ratio escalated to a record 287.8% in 2023, up 13.5 percentage points from the prior year, as reported by the National Institution for Finance and Development (FIND) in January. 

 

China treasury bond issuance shows Beijing wants to shoulder more of the growth burden 

The decision to issue treasury bonds reflects Beijing's intent to take on a greater portion of the burden of meeting growth targets, as local governments have faced reduced fiscal revenues and declining land sales. 

Dan Wang, chief economist of Hang Seng Bank China, told Reuters: 

"The Fitch revision has reflected the fundamental concern over China’s fiscal health and its ability to drive growth in the long term. With lagging private investment, state-backed funding has become even more important in driving growth, either in terms of infrastructure spending or in local government guidance funds for high tech industries”. 

After the announcement, China’s finance ministry said that it regretted Fitch's ratings decision, vowing to take steps to prevent and resolve risks from local government debt. 

"In the long run, maintaining a moderate deficit size and making good use of valuable debt funds is beneficial for expanding domestic demand, supporting economic growth, and ultimately maintaining good sovereign credit," the ministry said in a statement. 

Moody’s issued a downgrade warning on the China credit rating in December, citing costs to bail out local governments and state firms — and control its property crisis. 

 


When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. 

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. 

Latest news

Broadcom stock split set for mid-July after earnings beat

Thursday, 13 June 2024

Indices

Broadcom stock split set for mid-July after earnings beat

Federal Reserve anticipates only one interest rate cut this year

Thursday, 13 June 2024

Indices

Federal Reserve forecasts only one interest rate cut in 2024

Soft May US inflation reading welcome news for Federal Reserve

Wednesday, 12 June 2024

Indices

May’s softer US inflation data keeps Fed cut hopes alive

Macron calls snap election, riles markets

Wednesday, 12 June 2024

Indices

Markets riled up with Macron gamble, France's left tail risk

Live Chat