Beijing, Monday - Fitch Ratings affirmed China's Long-Term Issuer Default Rating at 'A' with a Stable Outlook, citing the combination of a large, diversified economic base and solid GDP growth prospects as the nation pivots toward higher-value manufacturing and technology sectors.
The rating agency listed China's central role in global trade and its strong external finances as pillars of support for the rating, while noting medium-term vulnerabilities stemming from persistently high budget deficits, declining government revenue and a rising debt burden.
Growth outlook
Fitch projects China's GDP growth to remain resilient, forecasting 5.0% in 2025 and 4.6% in 2026. The agency expects robust export performance and manufacturing activity to be key growth drivers. It also noted that a recent summit between President Xi Jinping and US President Donald Trump, which emphasized "strategic stability," should reduce the likelihood of near-term tariff re-escalation.
Domestically, demand appears subdued. Household confidence is weak, reflecting property wealth effects, and the labour market remains soft. Despite these headwinds, activity in the services sector has been relatively stronger.
Fiscal and balance-sheet dynamics
On a Fitch-consolidated basis, the general government deficit is forecast to narrow to 7.3% of GDP in 2026 from an estimated 7.6% in 2025. At the same time, total government revenue is expected to decline further to 20.6% of GDP in 2026, down from 29.0% in 2018. Fitch attributes the fall in revenue to tax reductions and weaker land-related receipts at the local government level.
General government debt is projected to rise to nearly 80% of GDP by 2028, up from 68.5% in 2025. Fitch points to sustained high deficits and the continuation of local government debt swaps involving financing vehicles as drivers of the increase.
Local authorities are implementing a five-year, CNY10 trillion debt-swap programme intended to address financing vehicle liabilities. The government identified CNY14.3 trillion of hidden debt in 2024; Fitch observes that figure is less than 25% of market estimates for total local government financing vehicle debt, which suggests residual contingent liability risks remain.
Corporate leverage is also significant: non-financial corporate liabilities were recorded at 174.7% of GDP at end-4Q25, placing them among the highest levels globally, according to Fitch.
Medium-term prospects and external strength
Fitch expects medium-term growth to average 4.3% through 2029, supported by policy emphasis on industrial upgrading and targeted investment in advanced manufacturing and technology sectors. Externally, sustained current account surpluses, large foreign-exchange reserves and a net external creditor position provide an unusual degree of external financing strength for a large economy, maintained despite years of elevated trade tensions with the United States.
Key takeaways
- Fitch affirms China's 'A' rating with a Stable Outlook, balancing growth prospects and external strength against fiscal and debt pressures.
- GDP is forecast at 5.0% in 2025 and 4.6% in 2026, with medium-term average growth of 4.3% through 2029, driven by exports and industrial upgrading.
- Fiscal strains include a narrowing but still-large deficit, declining revenue as a share of GDP, and a projected rise in general government debt to nearly 80% of GDP by 2028.
Risks highlighted
- Persistently high general government deficits and growing public debt - these fiscal dynamics affect sovereign creditworthiness and the public sector.
- Hidden local government financing vehicle liabilities and contingent risks from debt swaps - these pose risks to local government balance sheets and financial stability.
- Soft domestic demand driven by weak household confidence and a soft labour market - these conditions could weigh on services and consumption-led sectors.