Fitch Cuts China Rating Over Weakening Finances, Debt Concerns

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  • Fitch Ratings downgraded China's sovereign rating to 'A' from 'A+' due to concerns over weakening finances and rising public debt.

    Summary by Bloomberg AI

  • The downgrade reflects expectations that China's public finances will continue to weaken and public debt levels will continue to rise, based on forecasts made before the US imposed new tariffs.

    Summary by Bloomberg AI

  • The downgrade could hurt China's borrowing plans, which include considering more regular debt sales to tap international investors, and Fitch forecasts that China's augmented deficit will widen to 8.4% of GDP in 2025.

    Summary by Bloomberg AI

Fitch Ratings downgraded China’s sovereign rating on concerns over weakening finances and rising public debt, just one day after the US imposed higher tariffs on the country.

The cut takes China’s long-term foreign currency default rating to ‘A’ from ‘A+’ with a stable outlook, Fitch said in a statement on Thursday. China’s Finance Ministry responded with a strong rebuke, describing the decision as biased and not reflective of reality.

The cost of insuring Chinese sovereign debt against default using credit default swaps extended a gain that had begun earlier on Thursday, jumping to the highest level in more than two months.

The downgrade, which is based on forecasts made before US President Donald Trump announced new tariffs on Wednesday, reflects expectations that China’s public finances will continue to weaken and public debt levels will continue to rise, Fitch said.

Analysts at the ratings agency added that “there is headroom at the current rating to accommodate the likely implications for economic growth and fiscal metrics,” from the tariffs, which pushed US taxes on many Chinese goods well above 50%.

The downgrade could hurt China’s borrowing plans after the Finance Ministry said on Thursday it was considering making more regular debt sales to tap international investors. The country raised 6 billion yuan ($824 million) in its first-ever green sovereign bond sale in London earlier this week.

While China has set this year’s fiscal deficit target of around 4% of gross domestic product, Fitch forecasts that China’s augmented deficit — a broader measure of the fiscal gap — will widen to 8.4% of GDP in 2025, from 6.5% in 2024. That projection is “well above” the median 2.7% of GDP in Fitch’s ‘A’ category, the ratings firm said.

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