MARC Ratings has affirmed its public information sovereign rating of AAA/Stable on the People’s Republic of China (China), based on its national rating scale.  

The rating reflects the country’s credit strengths, including its large, diversified, and internationally competitive economy. China has become a leading manufacturing production centre, having the world's largest consumer market and deep integration in the global value chain. With the complete lifting of pandemic-related restrictions in 2023, China’s gross domestic product (GDP) grew at 5.2%, exceeding the official conservative projection of 5.0%. In 2024, the International Monetary Fund (IMF) expects China's GDP growth to moderate to 4.6%, below the government’s target of 5%, due to domestic financial stress and a less favourable global trade environment. 

With continued current account (CA) surpluses backed by its competitive international trade, China remained a net external creditor supported by the world’s largest foreign exchange reserves. The government's proactive approach to fiscal and monetary policies is pivotal in stabilising the economy, particularly during the ongoing crisis in the real estate sector, which had been a strong economic driver. China’s tightly regulated financial market policies and high domestic savings buffer have safeguarded the country against increased financial stability risks. The government’s high degree of control to adjust policies to engineer a stable recovery and sustain high growth, limit downside risks to China’s economy.

Key credit challenges include further financial contagion from the ongoing real estate downturn which continues to weigh on local government debt management. China ramped up its property stimulus measures, including restructuring programmes for distressed developers and providing incentives to affected homebuyers. However, a high level of real estate loans at 22.2% of total financial institution loans in 2023 may face distress despite the deleveraging trend (2022: 24.8%, 2019’s peak: 29.0%). Moreover, the financial stress in the property sector in recent years has constrained local government revenue which relies on land sales revenue, raising concerns about long-term fiscal sustainability. Government debt is likely to remain on an uptrend due to fiscal efforts to keep the economic recovery on track, with contingent liabilities of local governments remaining a key risk. 

Additionally, achieving material progress in transitioning from export-driven to consumption-led growth is critical to sustaining the growth rate due to the structural downtrend over the recent years. The present focus is on post-pandemic economic recovery, limiting the economic rebalancing efforts. With the geopolitical risk landscape continuously shifting, election outcomes worldwide in 2024, particularly that in the US, will shape global trade relations. Apart from geopolitical risks, financial decoupling pressures and trade fragmentation could intensify, adding pressure on China’s external sector.

China’s stable outlook reflects our expectation of the government’s pragmatic track record and resources in responding to economic and financial stress. Evidence of improved long-term local government debt management and the success of economic reform will strengthen China’s credit profile. Conversely, the credit profile could deteriorate if the reform momentum weakens along with worsening geopolitical and trade tensions as well as the deepening real estate crisis.