Previously published on April 22, 2024 in
Fitch Takes A Dim View Of China’s Financial Outlook
Fitch, the credit rating agency, has announced that it harbors doubts about the future of Chinese finance. Earlier this month, it re-affirmed China’s still high A+ rating, but downgraded what it calls the country’s “outlook.” Fitch has followed Moody’s, which did the same thing last December. Predictably, Beijing’s Finance Ministry expressed disappointment. It objected to Fitch’s characterization of matters, asserting that Chinese economics and finance are in fine shape and likely to improve. None of this should come as a surprise to readers of this column, which has over the last 18-24 months chronicled and explained China’s severe economic and financial challenges.
Fitch’s announcement highlighted many of these challenges. Prominent among them was the country’s property crisis and how it has depressed sales and activity in this once dominant part of China’s economy. By depressing real estate values, this collapse has cut into household wealth and accordingly also restrained consumer spending. On all these accounts, the crisis and its fallout have slowed the pace of Chinese economic growth. More generally, the failure of property developers has so saddled markets with so much questionable debt that confidence about any repayments has and that fact has further hamstrung the ability of borrowing and lending to support future growth. Fitch further faults Beijing for waiting years to act on this important matter.
