China’s sovereign ratings affirmed at ’A+/A-1’ by S&P Global

Investing.com -- S&P Global Ratings has affirmed China’s unsolicited ’A+’ long-term and ’A-1’ short-term foreign and local currency sovereign credit ratings, maintaining a stable outlook.

The rating agency expects China to return to self-sustaining economic growth of 4% or more annually over the next one to two years, allowing the government to gradually reduce policy support for the economy.

S&P projects that the rate of annual increases in net general government debt will decline to below 6% of GDP on a consistent basis, compared with an estimate of above 7% in 2025.

The stable outlook reflects S&P’s view that China’s policy settings will likely maintain robust economic growth and strong external metrics, while government efforts to address financial and social instability risks should allow continued economic development.

According to S&P, China’s fiscal performance should improve starting in 2026 as the drag from the real estate sector and weak local government finances eases further. Despite uncertainties in the international trading environment, stronger domestic demand should allow policy support to gradually decrease without real GDP growth falling below 4% annually over the next three to four years.

Much of the increased government spending over the past two years has been for non-recurrent items that can be reduced as the economic situation improves, including the Chinese renminbi 1.8 trillion central government special treasury bonds this year.

S&P projects net general government debt will reach slightly above 60% of GDP by the end of 2025, potentially increasing to 66% of GDP by 2028.

The rating agency expects the current account surplus to remain close to 3% of GDP over the next three to four years, with China’s external profile remaining a key credit strength due to its position as a large external creditor and the rising international use of the renminbi.

Consumer price inflation in China edged up only 0.1% year on year in June, with S&P expecting annual CPI inflation to average below 1% over 2025-2028.

For 2025-2028, S&P projects annual real GDP growth of just 4% or slightly more, with GDP per capita expected to exceed $16,000 by 2028, up from below $14,000 estimated for 2025.

The rating agency noted that both China and the U.S. have reduced trade tariffs against each other from the peaks seen earlier this year, though they have yet to reach a more lasting agreement to stabilize economic relations.

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