In a recent development, Fitch Ratings has opted to revise the outlook on China's long-term foreign debt from stable to negative. This move comes as Fitch cites escalating concerns regarding the country's public finance prospects amid a steady rise in debt levels.
The rating agency has highlighted a multitude of factors contributing to this decision. Among these is the mounting economic uncertainty faced by China, exacerbated by the ongoing efforts to steer away from a growth model heavily reliant on the property market. Fitch has noted that these endeavors have gradually eroded fiscal buffers from a ratings perspective, raising significant red flags.
In its statement released on Wednesday, Fitch underscored the increasing likelihood of fiscal policy assuming a pivotal role in bolstering growth in the foreseeable future. Consequently, the agency anticipates a continuation of the upward trajectory in debt levels. Moreover, Fitch has sounded the alarm on the escalating contingent liability risks, particularly as lower nominal growth exacerbates the challenges associated with managing the nation's high economy-wide leverage.
Despite the negative outlook, Fitch maintained China's actual issuer default rating at A+. This affirmation is grounded in several key strengths of the Chinese economy, including its substantial size and diversification, resilient economic growth prospects relative to peers, robust performance in global goods trade, strong external finances, and the status of its currency as a reserve currency.
This decision by Fitch underscores the growing concerns surrounding China's fiscal health, prompting a sobering reassessment of the country's long-term debt outlook. While acknowledging its economic prowess, the rating agency's shift to a negative outlook signals the imperative for vigilant fiscal management to navigate the challenges posed by escalating debt levels and sustain growth in the years ahead.
