Every country as well as company does not want the rating agencies to downgrade its debt because credit and access to credit is the aspect which keeps the economy going. A downgrade automatically means higher interest rates or more money to pay for interest costs.

In an article by Elaine Kurtenbach of the Associated Press, China’s Finance Ministry denounced a report by Fitch Ratings that keep its sovereign debt rate as A+, but downgraded its outlook to negative.

China’s Finance Ministry said China’s debt is a moderate and reasonable level and risks are under control.

Fitch Ratings believes risks to China’s public finances are rising as Beijing works to resolve mounting local and regional government debts and to shift away from heavy reliance on its troubled property industry. Fitch added China is a large and diversified economy and vital to global trade and China does have large foreign exchange reserves.

The Finance Ministry disagreed with Fitch Ratings and faulted its methods. The Ministry said China was appropriately intensifying improvement quality and efficiency of its government spending. Overall, our country’s local government debt resolution work is progressing in an orderly manner and risks are generally controllable.

Fitch noted China’s debt is forecast to rise to 7.1% of GDP, up from 5.8% in 2023. The median for countries with an A rating is 3%.

Tax relief measures and weaker property investments, which are usually a main source of local tax revenue have eroded the government’s capacity to collect tax revenues to offset the high government spending.

Fitch believes the Chinese government GDP will grow to 4.5% down from 5.2% last year.

Linking to dividend paying stocks, over the past 30 years, China’s growth has very good, but since COVID, the economy is slowing down. There has been a desire by manufacturers to move some of their operations out of China, as well as the property industry was 30% of the economy. Local governments funded their spending by selling property, that has slowed down or stopped. China is still a large economy, it is just not growing the way it used to grow. However, all companies and countries reacted the same manner as China. They say it was a flawed study, they missed the good stuff, they did not count the potential. If the CEO begins to say those type of things, find alternatives quickly.

There are more questions than answers, till the next time – to raising questions.