FITCH Ratings said on Wednesday (Dec 13) that its outlook for China in 2024 was neutral, but the country would continue to see headwinds from subdued external demand, property sector challenges and local government debt.

Fitch forecast mainland China’s gross domestic product (GDP) growth would moderate to 4.6 per cent from just over 5 per cent in 2023, adding it “forecast growth to be broadly stable and generally at levels above those of rating peers.”

Government advisers previously told Reuters they would recommend economic growth targets for 2024 ranging from 4.5 per cent to 5.5 per cent, with the majority favouring a target of about 5 per cent – the same as this year.

Policy support, in particular fiscal policy, is likely to be judiciously deployed to limit downside risks, according to Fitch Ratings. However, “such support may keep fiscal deficits wide and put further upward pressure on the debt ratio.”

In a rare mid-year adjustment, China in October raised its 2023 budget deficit target to 3.8 per cent of GDP from the original 3 per cent.

A senior Communist Party official said at a forum on Wednesday that China should set its 2024 fiscal deficit at an appropriate level, after top leaders pledged to step up policy adjustments to support an economic recovery next year.

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Fitch said debt issued by local government financing vehicles (LGFVs), typically investment companies that raise money and build infrastructure projects on behalf of local governments, might continue to migrate gradually on to the sovereign balance sheet because of pressures from the country’s property market slowdown.

China’s Cabinet has restricted the ability of local governments in 12 heavily indebted regions to take on new debt and placed limits on what new state-funded projects they can launch, Reuters reported in October, citing people familiar with the matter.

Ratings agency Moody’s last week lowered the outlook on China’s A1 debt rating to “negative” from “stable”, saying costs to bail out local governments and state firms and control its property crisis would weigh on the country’s economic recovery.

Fitch affirmed China’s credit rating at A+ with a “stable” outlook in August. REUTERS