China’s credit rating remains high according to Fitch, but the country’s outlook has been downgraded, much to the displeasure of the finance ministry.
Commentary
Fitch has expressed concerns about China’s financial situation. While maintaining China’s A+ rating, the credit agency has lowered the country’s “outlook,” following a similar move by Moody’s in December last year.
The Chinese finance ministry has objected to these actions, asserting that the country’s economic and financial conditions are stable and expected to improve. This comes as no surprise to readers of this column, which has been highlighting China’s economic challenges over the past 18-24 months. If anything, Fitch and Moody’s may not have gone far enough in their assessments.
In its announcement, Fitch pointed out several economic and financial issues in China. One major concern is the ongoing property crisis, which has had a significant impact on real estate sales and activity, leading to a decline in household wealth and consumer spending. These factors have hindered China’s overall growth potential.
The failure of property developers, burdened with questionable debts, has created a lack of confidence within China’s financial sector. This lack of trust has hampered the ability of Chinese finance to support future growth. Fitch also criticizes Beijing for delaying action on this critical issue.
Additionally, Fitch highlighted the challenges faced by local governments in managing their heavy debt burdens, exacerbated by the property market collapse. The loss of revenue sources due to the crisis has made it even more difficult for local governments to repay their debts, with estimated debt burdens reaching around $11 trillion.
Beijing’s response to this situation includes issuing its own debt to finance infrastructure projects, aiming to stimulate the economy. This decision reflects a cautious approach, indicating a reluctance to expect immediate returns on spending and a desire to delay repayments as long as possible.
The financial outlook for China remains concerning, with discrepancies between official figures and estimates from agencies like Fitch. The increasing central government debt relative to GDP paints a bleak financial picture, exacerbated by weak responses to economic challenges and trade tensions with major global partners.
Despite these challenges, Fitch and Moody’s have refrained from downgrading China’s credit rating, perhaps influenced by political factors. However, the recognition of China’s underlying problems is becoming more widespread each day.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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