China imbalances show growth dependence on fiscal support and net trade - Fitch Ratings

China imbalances show growth dependence on fiscal support and net trade - Fitch Ratings

China’s Growth Imbalances Highlight Reliance on Fiscal Support and Net Trade—Fitch Ratings

Fitch Ratings has highlighted structural imbalances in China’s economic growth, emphasizing an increasing dependence on fiscal policy and net trade to offset weak domestic demand. According to Fitch, China’s GDP growth is projected to slow to 4.1% in 2026, primarily due to persistent weaknesses in consumer and investment demand. This projection underscores a shift in growth drivers, with fiscal stimulus and external demand playing a more prominent role in sustaining economic activity.

The agency noted that accommodative monetary and fiscal policies have mitigated near-term growth risks, particularly in 2024, by supporting sectors such as infrastructure and real estate. However, these measures have also exacerbated fiscal challenges, including rising local government debt and limited fiscal flexibility. Meanwhile, private investment remains subdued, with Fitch warning that a contraction in investment could elevate credit risks across sectors in 2026, compounding pressures on financial stability.

Net trade has emerged as a critical buffer for China’s growth trajectory. Export resilience, driven by global demand for manufactured goods and technological products, has partially offset domestic demand shortfalls. However, Fitch cautions that external headwinds—such as slowing global growth and trade protectionism—could undermine this support, creating asymmetries in China’s economic model.

The reliance on fiscal support and external demand reflects broader structural vulnerabilities. While policy interventions have stabilized growth, they mask underlying challenges in stimulating private consumption and innovation-driven expansion. Fitch emphasizes that without reforms to address domestic demand weaknesses, China’s growth outlook will remain fragile, with risks concentrated in fiscal sustainability and cross-sector credit stability.

As 2026 progresses, stakeholders will closely monitor policy implementation and external trade dynamics to gauge China’s ability to balance short-term growth objectives with long-term structural resilience.

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