Fitch cuts China outlook to 'negative'

Fitch Ratings has cut its outlook on China to ‘negative’ on the back of the country's increasingly uncertain economic prospects.

In a note published overnight, the rating agency said it had revised the outlook on China’s long-term foreign currency issuer default rating (IDR) to ‘negative’ from ‘stable’. It affirmed the IDR at 'A+'.

It explained: "The 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 a more sustainable growth model."

Wide fiscal deficits and rising government debt had also eroded fiscal buffers, Fitch argued, with fiscal policy "increasingly likely to play an important role in supporting growth in the coming years, which could keep debt on a steady upward trend".

China’s once extraordinary economic growth has stalled dramatically in recent years. The economy was hit hard by Beijing’s policy of zero Covid, which included stringent rolling lockdowns long after the rest of the world had reopened.

Its once red-hot property sector has also slumped, leaving developers struggling to service mammoth debt piles, while both domestic and global demand has weakened notably.

China is targeting economic growth of 5.2% this year, unchanged on 2023 and one of the lowest rates in decades.

However, Fitch said it did not expect GDP to meet even the 5.2% target. Instead, it expects it to slow to 4.5% this year, "due to persistent property sector weakness and subdued household consumption".

Beijing, which has actively sought to bolster the economy in recent months, hit back at the downgrade, however. The finance ministry said Fitch’s rating system "failed to effectively anticipate the positive role of fiscal policies in promoting economic growth".

In December, rival rating agency Moody’s also cut its outlook for China to ‘negative’, citing the cash-strapped property sector and rising government debt.