China's Credit Conditions Face Strains From Weak Domestic Demand, External Shocks, Fitch Says
Dampened domestic demand and external strains from the US-Iran war will continue to temper credit prospects in China, Fitch Ratings said in a recent release.Fitch expects China to post real GDP growth of 4.3% under its base case, but this could fall to 3.8% under a downside scenario where the Strait of Hormuz remains closed through the end of the second quarter.Lingering weak demand continues to be China's main credit pressure, with increased input costs and eroded export support also factoring into the downtrend, Fitch said.Credit constraints will be distilled in exposed sectors, including chemicals, which face pressure from increased feedstock costs amid tighter crude, naphtha, and liquefied petroleum gas markets, as well as downstream oil and gas, the rating agency said.Policymakers will likely continue prioritizing supply over demand, which narrows the potential for a more robust recovery in household spending, Fitch said.Property weakness further strains credit dynamics across sectors, with Fitch forecasting 2026 sales to drop by 7% and 8%.The rating agency expects funding conditions to remain accessible even with the external shock, with sufficient domestic liquidity and low market rates anchoring the bond market.