China’s economic management is under the cloud, as a mountain of debt and real estate crisis
The downgrade reflects a deterioration in China’s public finances under the leadership of the Communist Party of China (CCP), and government debt is expected to reach a staggering 80% of GDP in 2029, more than double that in 2019, according to people in the Chinese economy.
“The downgrade reflects our expectations for a continued weakening of China’s public finances and the rapid rise in the trajectory of public debt during the transition of the country’s economy,” Fitch said in a statement.
Beijing regards the downgrade as “biased” rather than reflecting reality. But this shows recognition of the basic weaknesses in the CCP’s economic management strategy.
Rating agencies predict that China’s general government deficit will grow to 8.4% of GDP in 2025, far exceeding the 2.7% “A” median deficit in category maintained by comparable economies. This dramatic deterioration from China’s pre-pandemic fiscal situation shows that the government is increasingly relying on spending due to debt to maintain economic stability.
As debt forecasts climb from 60.9% GDP in 2024 to 74.2% in 2026, and to the final forecast of 80% in 2029, explosive growth in public debt exposes the fundamental vulnerability of CCP, in which the CCP approach is overly reliant on Fiscal stimulus rather than structural reforms, rather than structural reforms. According to Fitch’s analysis, while official data confirmed CNY 14.3 trillion USD 14.3 trillion, these amounts are less than 25% of the market’s estimated local government financing instruments (LGFV) debt. This underscores the potential debt disaster far exceeds the regime’s responsibility for public disclosure, raising serious questions about the transparency of the CCP and the reliability of its financial reporting practices. China’s real estate sector is deeply troubled. The real estate market has been the first to bear in the past few years, including property bubbles fueled by speculative investments and construction caused by over-debt dependence. According to experts from China’s economy, data from the financial economy show that the collapse of the real estate sector is caused by default sales by well-known developers such as Evergrande Group, which amassed more than $300 billion in debt, indicating the inherent instability of the Chinese economy, which still relies too much on real estate sales and construction to stimulate the growth of China’s economy.
In China’s “ghost cities”, the supply range far exceeds distant demand, which depends on land sales and revenue. As property values decline, financial institutions and shadow banking networks have funded the boom that faces the ongoing non-performing loans and liquidity strains. Cascading defaults within the industry could further undermine the broader financial system.
China’s GDP growth in Fitch Projects fell from 5.0% in 2024 to 4.4% in 2025, suggesting internal challenges such as stagnant real estate markets and shaky domestic demand are already undermining the momentum of the economy. The continued reliance on fiscal stimulus, coupled with increasing corporate and government responsibilities, has a long-standing shadow on China’s ability to maintain its economic trajectory.
Renew trade tensions, especially in the U.S. and the U.S. tensions are more complicated.
President Trump imposes broad tariffs on key imports, including those that are crucial to China’s export-driven sectors, and the country’s external economic vulnerability is exposed. Analysts from institutions such as UBS warn that U.S. tariff countermeasures could reduce China’s export growth by up to 5 percentage points in 2025, exacerbating pressure on growth prospects and exacerbating internal challenges posed by collapsed real estate markets and pressures financial institutions.
Although China continues to capitalize on its massive and diversified economy and its key role in global trade, these growing fiscal, real estate and financial difficulties have made the CCP economic model lasting doubt.
