(Editor's Note: Editor's note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings). )
This report does not constitute a rating action.
Tariffs will hit China's export-oriented coastal regions the hardest. Guangdong, Zhejiang, Jiangsu, Shanghai and Shandong are among the country's biggest provincial-level economies. They are also the biggest exporters to the U.S. We believe recent U.S. trade actions may strain the local economies and fiscal revenues of these local governments, stymying deleveraging efforts.
What's Happening
Recent tariff hikes at their current levels could have a long-lasting impact on China's regional economies that trade most actively with the U.S. This comes at a time when local government debt burdens have markedly risen due to a prolonged property downturn, large-scale infrastructure spending and tepid tax revenue growth.
Why It Matters
These coastal provinces contribute about 40% of China's GDP. The regions are export-focused, with established manufacturing bases and well-integrated supply chains. The proportion of Chinese exports to the U.S. has been gradually falling since 2018, from about 19.3% of total Chinese exports to 14.7% in 2024. Nonetheless, 3%-7% of these regions' GDP remains exposed to direct U.S. exports. Higher tariffs may hit a significant part of this economic contribution.
For provinces that may not export as much, the impact to their economies could also be material. These includes the likes of Shanxi, Henan and Sichuan where at least a fifth of their exports have been directed to the U.S.
A small portion of these export goods could have low replaceability and strong price inelasticity. More importantly, electronic goods such as smartphones, laptop computers and other items are exempt from the highest tariffs for the time being. The lack of detailed disclosure makes it difficult to estimate how much of the provinces' exports are destined for the U.S. or which subsegments of the mechanical and electronic goods category could be eligible for some tariff exemptions. However, we do know that these provinces rely on high levels of this export category. We believe the trade impact would be heavy if tariff exemptions were taken away.
Chart 1
Second-order effects will likely be meaningful. This includes hits to manufacturers' profitability, capacity investment decisions, and diminished employment and consumer confidence. These could weaken conditions and affect growth, and ultimately dampen local governments' fiscal revenue.
Take the case of Guangdong. Its growth has been decelerating in the past few years. Its GDP expanded 3.5% in 2024, below the national level. The drop was partially due to industry transitioning, global trade strains and a years-long property slump. The province aims to bolster its economy with more focus on high-tech industries and advanced manufacturing, while moving away from lower-value production. The new tariffs throw another obstacle at the province as it manages its difficult transition.
What Comes Next
Local governments in these regions could experience lower revenue and greater debt. The effects will likely be negatively reinforcing. Shared taxes such as value-added tax and corporate income tax could take a hit. Moreover, stimulus from local governments needed to counter tariff effects could also lift their debt levels. Governments may opt to do more in offering tax relief, subsidies in areas such as consumption and debt-funded investments to fuel and maintain growth.
Officials have already initiated programs to stimulate exports to ex-U.S. markets and to promote the domestic sale of manufactured products originally targeted for export.
We expect the diversity, depth and agility of affected economies will add to their resilience. This should allow the coastal regions to maintain their economic strength even if growth decelerates. These regions will likely continue to be the powerhouses of Chinese GDP. They have the most vibrant and diverse economies that carry some of the strongest socioeconomic metrics in China including high average wealth and disposable incomes, and stable or strong population inflows.
For example, Shanghai's GDP per capita likely surpassed US$30,000 in 2024, which should be more than double the national average. We believe these local governments will prioritize financial stability and continue to manage their fiscal sustainability such that they can absorb their pressures.
Related Research
- Credit Conditions Asia-Pacific Special Update: U.S.-China Ties In Uncharted Territory, April 15, 2025
- Global Credit Conditions Special Update: Ongoing Reshuffling, April 11, 2025
- Asia-Pacific Credit Conditions To Deteriorate Amid Tariff Fallout, April 7, 2025
- China: Can Stimulus Offset Slow Growth And New Tariffs, March 24, 2025
| Primary Credit Analysts: | Christopher Yip, Hong Kong + 852 2533 3593; christopher.yip@spglobal.com |
| Wenyin Huang, Singapore +65 6216 1052; Wenyin.Huang@spglobal.com | |
| Secondary Contact: | Chen Guo, Hong Kong 25328063; chen.guo@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.