China’s credit profile benefits from its robust external position, large economic size and high domestic savings. However, these strengths are partly offset by slowing growth prospects and significant off-budget borrowings by local governments, which pose contingent liability risks to the sovereign. Additionally, high private debt levels and an ageing population also weigh on China’s credit profile.

Notably, the risk of crystallization of contingent liabilities has increased considerably in recent times, as the ongoing property sector slowdown has impacted revenues of local governments.

While rising geopolitical tensions and de-globalisation do not pose a significant near-to medium-term threat to China’s position as a global manufacturing hub, they remain a key monitorable.