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Higher US tariffs could weigh on China’s economy and spill over to the banking sector, leading to a rise in problem loans in the coming years, according to global ratings agency S&P.

In a pessimistic scenario, the rating agency warned that China’s nonperforming asset ratio – including bad loans and other overdue debts – could climb to 6.4 percent of total lending.

China’s commercial banks ended 2024 with nonperforming assets at 5.1 percent of total loans, outperforming S&P’s earlier forecast of 5.9 percent, supported by the country’s stronger-than-expected GDP growth of 5 percent last year.

However, S&P expects US tariffs to weigh on China’s economy, projecting average GDP growth to slow to 4 percent between 2024 and 2027, even before any retaliatory tariffs are announced. Tariffs could hit China’s export-driven industries and employment, leading to higher bad debts in small businesses and unsecured retail loans, it warned.

S&P’s baseline projection sees China’s commercial banks’ NPA ratio fluctuating between 5.5 percent and 5.9 percent through 2027.

STAFF REPORTER

A lion statue is seen outside a bank on Financial Street in Beijing. Reuters

China's bad loans could exceed 6pc following higher US tariffs – S&P Global