Moody's revises China's economic prospects amid financial concerns

Sign up for CNN’s Meanwhile in China newsletter to stay informed about the country’s rise and its global impact. Fitch downgraded China’s credit rating outlook on Tuesday due to growing financial risks amidst economic challenges.

Fitch has maintained its A+ rating on Chinese sovereign bonds, but it has lowered its outlook from stable to negative. This change does not guarantee a downgrade in China's creditworthiness, but it does raise the likelihood.

Fitch stated that the revision reflects the increasing risks to China's public finance outlook. The country is facing more uncertain economic prospects as it transitions away from property-reliant growth to a more sustainable model, according to a statement.

Fitch predicts that the general government deficit will increase to 7.1% of gross domestic product in 2024, up from 5.8% last year. This year's deficit is expected to be the highest since 2020, when pandemic-related controls began to heavily impact public finances.

China's Finance Ministry has expressed "regret" over the revision. They mentioned in a statement on Wednesday that they had extensive discussions with the Fitch Ratings team initially, and the report did reflect some of China's perspectives.

The agency criticized the methodology for not recognizing the positive impact of fiscal policy on economic growth.

It emphasized the importance of maintaining a moderate deficit and using debt funds wisely to boost domestic demand, support economic growth, and uphold a strong sovereign credit rating.

The fiscal budget deficit ratio for 2024 is planned to be 3%, as described in the statement as "overall moderate" and supporting stable economic growth.

The ministry has aimed for a 5% economic growth rate for this year, stating that it aligns with realistic conditions.

China's economy continues to show a positive long-term trend, with the government's commitment to maintaining strong sovereign credit unchanged. In contrast, Moody's recently downgraded China's credit rating outlook from stable to negative in December. This was due to concerns about lower medium-term economic growth and ongoing challenges in the property sector.

Editor's P/S:

The downgrade of China's credit rating outlook by Fitch raises concerns about the country's economic prospects as it grapples with financial risks and transitions away from property-reliant growth. The increasing government deficit and uncertain economic outlook have prompted Fitch to lower its rating from stable to negative, indicating a potential downgrade in the future.

China's Finance Ministry has expressed its disappointment with the revision, arguing that Fitch's methodology does not fully recognize the positive impact of fiscal policy on economic growth. However, the agency emphasizes the need for maintaining a moderate deficit and using debt funds wisely to sustain growth and preserve the country's credit rating. Despite the downgrade, China remains committed to maintaining strong sovereign credit and has set a 5% economic growth target for this year.