Fitch cuts China's credit score as debt increases
Global agency says rampant borrowing, local government financing are of growing concern
For the first time, Fitch Ratings has downgraded one of its sovereign ratings of China, citing the rapid expansion of credit in the country.
The international ratings agency announced yesterday that it had cut China's long-term local-currency debt rating to A-plus from AA-minus.
"Risks over China's financial stability have grown," said Fitch. "Credit has grown significantly faster than [gross domestic product] since 2009. China experienced the second-fastest expansion of credit, behind only Qatar, between the end of 2009 and the end of June 2012."
The stock of bank credit extended to China's private sector represented 135.7 per cent of GDP at the end of 2012, the third-highest of any Fitch-rated emerging market.
Fitch believes the total amount of credit in the mainland's economy, including credit created by various forms of shadow banking, reached 198 per cent of GDP at the end of 2012, up from 125 per cent at the end of 2008.
"The proliferation of other forms of credit beyond bank lending is a source of growing risk," it said.
Fitch's analysis found the debt of mainland local governments rose to 12.85 trillion yuan (HK$16 trillion) at the end of last year, or 25.1 per cent of GDP, up from 23.4 per cent a year earlier.