China’s investment crash raises credit risks for homebuilders, banks,

China’s sharp investment downturn is amplifying credit risks across the economy, particularly homebuilders, real estate, banks and construction sectors, Fitch Ratings has warned, as a slowing economy crimps their growth and the ability to repay debt.

Fixed-asset investment in China, or FAI, declined 3.8% in 2025 to 48.52 trillion yuan ($6.8 trillion) — the first annual decline in decades — as a deepening property slump and tighter constraints on local governments’ borrowing have hampered one of China’s traditional growth drivers.

The drastic investment slump in the second half of 2025 has raised significant cross-sector credit risks for rated issuers in China, including that for the government, Fitch said. The rating agency downgraded China’s sovereign rating to “A” from “A+” in April on concerns over weakening finances and rising public debt.

Fitch warned that growth outlook for several sectors was “deteriorating,” citing subdued domestic demand, deep-seated deflationary pressures and property downturn.

The world’s second largest economy lost momentum in the final quarter of 2025, clocking its slowest growth in three years at 4.5%.

Among FAI, property investment declined for a fourth consecutive year, plummeting 17.2% last year from a year ago, as the housing downturn continued to sap activity across construction and upstream suppliers. Nationwide residential sales dropped to 7.3 trillion yuan ($1 trillion), their lowest level since 2015, while prices for existing apartments continued plummeting.

The property downturn has pushed several cashed-strapped developers into distress. Last month, Fitch downgraded China Vanke Co, once the country’s biggest developers, to “restricted default” as the the company sought to extend the deadline for an onshore bond payment.

Earlier this month, Fitch downgraded Dalian Wanda Commercial Management Group and Wanda Commercial Properties to “restricted default” on completion of a distressed debt exchange. Jingrui Holdings last week was ordered to wind up operations in Hong Kong.

The rating agency expects China’s GDP to grow at 4.1% due to easing net trade and sluggish consumer spending. A sustained double-digit decline in FAI will likely be unable to sustain 4%-5% growth in 2026, Fitch said.

Goldman Sachs, however, noted that concerns over the sharp plunge in investment may be overblown, as the decline could be partly due to “statistical correction of previously over-reported data, rather than a genuine slowdown.”