FALCON POWERS – The Chinese Ministry of Finance has criticized Fitch Ratings’ report, which maintained China’s sovereign debt rating at A+ but revised its future outlook from positive to negative. The ministry stated that China’s deficit is at a moderate level, and risks are under control.
Fitch estimated that the risks facing China’s public finances are increasing as Beijing works to address the growing issue of local and regional government debts and move away from heavy reliance on the struggling real estate sector to drive economic growth.
While the slowdown in growth exacerbates challenges in adapting to heavy borrowing, Fitch justified its decision to maintain China’s A+ rating due to its “large and diverse economy, vital role in global trade, and massive foreign exchange reserves.” The Ministry of Finance expressed its “regret” that Fitch downgraded its sovereign debt rating and made inaccurate assessments, stating that Fitch failed to consider Beijing’s efforts to “appropriately improve quality and efficiency” in government spending.
The ministry also mentioned that “in general, the work of resolving local government debts in our country is progressing in an organized manner, and risks can be controlled overall.” Fitch’s report indicated that the general government deficit in China is expected to rise to 7.1% of GDP this year, up from 5.8% in 2023.
The report also stated that the average rating for countries classified as “A” is 3.0%. The average ratio was 3.1% during 2015-2019 but jumped to 8.6% in 2020 during the COVID-19 pandemic. The report mentioned that tax relief measures and a decline in real estate investments, which are usually a major source of local tax revenues, have eroded the government’s ability to collect taxes to compensate for increased spending.
Fitch’s report projected China’s economy to grow at an annual rate of 4.5% this year, down from 5.2% last year, due to the slowdown in the real estate sector and weak consumer spending. However, it stated that increased government spending is likely to help offset some of this weakness.
