The credit profile of China [rated ‘A (Unsolicited)’] should be able to bear the near-term impact of the current 10 per cent additional tariff imposed by the US, according to CareEdge Global Ratings.
“A” rating denotes adequate degree of safety regarding servicing of debt obligations with low credit risk.
CareEdge Global Ratings, which is a subsidiary of CARE Ratings, assessed that the tariffs are expected to reduce exports to the US, lower China’s sizeable current account surplus marginally, and affect the foreign direct investment flows into the country.
Further, real GDP growth could decline by around 25 basis points in 2025, and disinflationary pressures might increase.
“This global environment can add to the challenges of a troubled property sector and a weakening domestic consumption. In response, China may provide an economic stimulus in an attempt to partly offset the negative impact on economic indicators.
“Some currency depreciation may also be likely, consistent with the previous experience,” said the rating agency officials — Rajani Sinha, Chief Economist; Kiran Kavala, Senior Director; and Mihika Sharma, Economist, in a report.
Additional tariffs
They observed that China may also impose additional tariffs on its imports from the US. These measures can help partly offset the evolving global and domestic economic environment for the country.
However, the country’s strengths, such as a strong external position, a low current interest-to-revenue ratio of the general government and a high share of domestic funding of government debt, will enable it to manage the impact on its credit profile.
Moreover, China’s export dependence on the US has reduced since the first trade war, which should also offer some support to its credit profile.
CareEdge Global officials observed that China’s exports to the US now account for 2.8 per cent of its GDP (2024), down from 3.5 per cent before the start of the first trade war (2017).
Further, this time, given that other countries are also facing tariff threats from the US, the impact on China’s trade may be lower relative to other countries. As a result, the actual impact of the additional 10 per cent tariff on China may be limited.
“Nonetheless, any further increase in tariffs in the future may add to the uncertainty. In this context, a key monitorable for CareEdge Global will be the likely future policy direction on the trade front, which will be known once the upcoming United States Trade Representative (USTR) report is released in the next few months,” the officials said.