China's ratings are supported by the country's robust external finances, a track record of strong macroeconomic performance, and size as the world's second-largest economy. The ratings are primarily constrained by large structural vulnerabilities in the financial sector, relatively low per capita income, and weaker governance metrics than those of 'A' peers.

After a severe blow to economic activity during the first quarter of this year from the imposition of stringent social distancing measures to contain the spread of the coronavirus, China's economy is now staging a remarkable recovery. Real GDP rose by 3.2% yoy during 2Q20, above Fitch's prior expectations, and up from a 6.8% contraction in 1Q20. While the economic recovery remains uneven, with consumer-driven activity lagging the industrial sector, monthly data outturns continue to gain pace amid low domestic infection rates.

Fitch forecasts real GDP growth of 2.7% in 2020 (previously 1.2%), among the highest across Fitch-rated sovereigns this year, though well below China's five-year historical trend of 6.7%. The risk of further coronavirus outbreaks cannot be ruled out, but the authorities' recent success in rapidly containing a spike in infections in Beijing points to a growing capacity to manage outbreaks locally, without resorting to the kind of large-scale lockdown that would be highly damaging to economic activity. Fitch's baseline assumes growth will temporarily accelerate to 7.5% in 2021, before returning to our estimated trend rate of 5.5% in 2022. 

Source: Fitch Ratings