China’s Credit Rating Downgraded Amidst Tariff War
Fitch Ratings has downgraded China's long-term foreign currency credit rating from A+ to A, citing concerns over escalating public debt and weakening public finances. The downgrade reflects expectations of increased government spending to stimulate economic growth amid rising U.S. tariffs, which are projected to elevate the debt-to-GDP ratio from 60.9% in 2024 to 74.2% by 2026.
China’s Finance Ministry has criticized the move as biased, asserting the stability and resilience of the nation's economic foundations. This development occurs against the backdrop of U.S. President Donald Trump’s imposition of additional 34% tariffs on Chinese goods, intensifying trade tensions between the two nations.
Scenario Forecasting:
Optimistic Scenario:
China successfully implements fiscal and monetary policies that mitigate the effects of tariffs and sustain economic growth around 5%.
Domestic consumption and investment remain strong, reducing reliance on exports.
International diplomatic efforts lead to a partial rollback of tariffs, easing economic pressures.
Neutral Scenario:
China's economic growth stabilizes at 4.4%-4.6%, but rising debt continues to pressure public finances.
Government stimulus maintains economic activity, but structural issues like the property market slowdown persist.
Sino-U.S. relations remain tense, with limited policy coordination and continued trade restrictions.
Pessimistic Scenario:
Debt burdens and fiscal deficits worsen, pushing debt-to-GDP beyond 75% by 2027, increasing risk of financial instability.
Investor confidence deteriorates, leading to significant capital outflows and currency depreciation.
Escalating trade conflicts with the U.S. and other economies further dampen export growth, dragging economic expansion below 4%.
Key Data:
Debt-to-GDP Ratio: Projected to increase from 60.9% in 2024 to 74.2% by 2026.
Economic Growth Forecast: Expected to slow to 4.4% in 2025 from 5.0% in 2024.
General Government Deficit: Anticipated to rise to 8.4% of GDP in 2025, up from 6.5% in 2024.
Friday, April 4, 2025
