Fitch downgrades China’s outlook to negative: what does it mean for technology?

China’s Outlook Downgraded by Fitch as Debt Concerns Rise

China has been hit with a negative outlook on its sovereign credit rating by Fitch, signaling potential trouble ahead for the Asian giant.
The rating agency cited lingering risks to Beijing’s public finances amidst a growing economic uncertainty as the country transitions to new growth models.
Fitch’s decision reflects concerns that the government may accumulate more debt to steer the economy away from a slowdown, particularly driven by the real estate sector.

Challenges and Responses

In response to Fitch’s downgrade, the Chinese Ministry of Finance defended its fiscal policies, asserting that they support growth.
The government aims to manage the debt-to-GDP ratio effectively, ensuring space to tackle future risks and challenges.
Fitch forecasts China’s general government deficit to rise to 7.1% of GDP by 2024, up from 5.8% in 2023 – the highest since 2020.

Over the past twelve years, China’s public debt has surged, fueled by government stimulus to maintain growth rates.
With the current real estate crisis threatening production and investor confidence, Beijing has introduced new stimulus measures, such as subsidies for households and businesses upgrading appliances and machinery, with more initiatives possibly on the horizon.

Debt Concerns and Economic Growth

China’s public debt was close to 80% of GDP last year, doubling from levels seen in the mid-2010s, as per the Bank for International Settlements.
While lower than advanced economies like Japan and the U.S., it remains relatively high for an emerging market.
Fitch’s warning emphasizes the impact of extensive fiscal deficits and rising public debt on China’s financial buffers and the challenges associated with high leverage amidst lower growth rates.

Forecasts indicate a slowdown in economic growth, with Fitch estimating a growth rate of 4.5% in 2024, down from 5.2% in the previous year.
The International Monetary Fund expects Chinese GDP to expand by 4.6% this year in the face of mounting economic challenges.