The impact of the ongoing trade dispute between Beijing and Washington is already being felt in China, with concerns being raised about the country’s national debt. Fitch ratings, a US-based credit agency, believes that the country could be set for debt to raise to an eye-watering 80% of GDP by 2029, more than double the level seen in 2019.
Such a raise and the subsequent impact on the Chinese economy could have significant consequences for the ruling Chinese Communist Party (CCP). After downgrading the country in their ratings to reflect their concern over the future of the economy, Fitch said in a statement: “The downgrade reflects our expectations of a continued weakening of China’s public finances and a rapidly rising public debt trajectory during the country’s economic transition.”
Beijing dismissed what it called a “biased” decision but the impact of a potential trade war on the future of China’s ruling class cannot be underestimated.
According to Fitch, China’s debt will rise from 60.9% of GDP in 2024 to 74.2% in 2026, with economic volatility caused by global tariffs having the potential to accelerate such growth.
China has emerged as one of the world’s leading economies in the last two decades and has used its newly-acquired wealth to spread its influence across the globe through the belt and road initiative.
Domestically, the lack of public pushback by large parts of the population, despite an increase in executive power for those at the centre of the political sphere, has largely been credited with an increase in living standards and wealth for the country’s burgeoning middle class.
Financial pressures therefore has the potential to cause the ruling party significant difficulties domestically.
China’s real estate sector is one of those experiencing signs of pressure.
Systemic issues, especially a property bubble fuelled by speculative investments and over reliance on debt to fund construction has led to the creation of “ghost cities” where supply far outstrips demand.
With property prices falling and banks struggling to fund a reversal in fortunes, Fitch predicts that China’s GDP growth could fall to 4.4% in 2025 from 5.0% in 2024.
All of this could come to fruition without a trade war with the United States, with economic conflict likely to only exasperate the systemic issues faced by the global superpower.
US President Donald Trump has so far refused to back down on the imposition of tariffs on China which could see as much as 125% levied on Chinese goods entering the United States.
As one of the biggest importers of Chinese goods such high levels of tariffs could stifle Chinese growth by removing the economic advantage enjoyed by the country for years as a result of being able to mass produce goods at a low cost.