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 April 3. 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 April 3, 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 April 2, 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 April 3 it was considering making more regular debt sales to tap international investors. The country raised RMB6 billion in its first-ever green sovereign bond sale in London earlier this week.
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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.
