Rating Confirmation

Fitch Ratings affirmed China’s long‑term issuer default rating at ‘A’ with a stable outlook, highlighting the country’s large, diversified economy and solid GDP growth prospects as it moves toward advanced manufacturing and technology sectors. The affirmation is underpinned by China’s integral role in global trade and robust external finances, though medium‑term challenges include high fiscal deficits, declining revenue, and rising debt levels.

Economic Growth Outlook

Fitch forecasts China’s real GDP growth to be 4.6% in 2026, a slight deceleration from the 5.0% projected for 2025, driven primarily by robust export performance and manufacturing activity. The agency notes that a recent summit between President Xi Jinping and U.S. President Donald Trump, which emphasized “strategic stability,” should help limit the risk of near‑term tariff re‑escalation. Domestic demand remains subdued because of weak household confidence stemming from property‑wealth effects and a soft labour market, although services activity has shown relative strength.

Fiscal and Debt Projections

On a Fitch‑consolidated basis, the general‑government deficit is expected to narrow to 7.3% of GDP in 2026, improving from 7.6% in 2025. Government revenue is projected to fall further to 20.6% of GDP in 2026, down from 29.0% of GDP in 2018, reflecting tax cuts and a decline in local‑government land‑related revenue. General‑government debt is forecast to rise to nearly 80% of GDP by 2028, up from 68.5% of GDP in 2025, driven by sustained high deficits and local‑government debt swaps with financing vehicles.

Local‑Government Debt Management

Local governments continue to implement a five‑year debt‑swap programme valued at CNY10 trillion to address financing‑vehicle debt. The government identified CNY14.3 trillion of hidden debt in 2024, which represents less than 25% of market estimates for total local‑government financing‑vehicle debt, indicating lingering contingent‑liability risks.

Corporate Liability Context

Non‑financial corporate liabilities stood at 174.7% of GDP at the end of the fourth quarter of 2025, placing China among the highest globally.

Medium‑Term Growth and External Position

Fitch projects medium‑term growth to average 4.3% per year through 2029, supported by the government’s focus on industrial upgrading and investments in advanced manufacturing and technology sectors. China’s current‑account surpluses, large foreign‑exchange reserves, and net external‑creditor position provide external‑finance strength that is uncommon among large economies, and this strength has been maintained despite years of rising trade tensions with the United States.