Published On: Fri, Apr 12th, 2024

China’s debt outlook leads to ratings agency downgrade | World | News

China has has its credit rating downgraded after a major ratings agency warned it faces possible uncertainty as it attempts to move away from a reliance on property.

US-based Fitch says the sovereign credit rating of China has been moved from “stable” to “negative,” a move it says reflects the “increasing risks to China’s public finance outlook”.

China faces a prolonged crisis in its property sector after a clampdown on debt-fuelled construction.

Earlier this year Chinese property firm Evergrande was forced into liquidation while its rival Country Garden suspended trade in Hong Kong after delaying publishing its annual results, reports The Guardian.

Beijing has attempted to address the issue already, announcing a series of measures designed to increase other areas of industry across China.

Fitch however said the country’s economic prospects remained uncertain as it moved away from “property-reliant growth” to what its government sees as a “sustainable growth model”.

It said: “Wide fiscal deficits and rising government debt in recent years have eroded fiscal buffers from a ratings perspective.”

It added that while the Chinese government’s policies are likely to drive growth in future years, they could also see a “steady upward trend” in debt.

Fitch forecasts that the general government deficit will rise to 7.1% of gross domestic product in 2024, from 5.8 percent in 2023.

Although China’s outlook was lowered from stable, suggesting a downgrade is possible over the medium term, the agency affirmed China’s issuer default rating at A+.

China’s Finance Ministry has expressed “regret” over the revision, reports CNN. In a statement it said: “We had a lot of in-depth communication with the Fitch Ratings team in the early stage, and the report partly reflected China’s views.

“In the long run, maintaining a moderate deficit and making good use of precious debt funds will help expand domestic demand, support economic growth, and ultimately help maintain good sovereign credit.”

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