Fitch Ratings has cut China’s long-term local-currency debt rating and increased risks to the country’s financial stability.
Fitch has lowered the China rating to A+, its fifth-highest level, from AA-, the fourth-highest. The company estimates total credit in China’s economy, including various forms of so-called shadow banking, may have reached 198% of gross domestic product (GDP) at the end of last year, up from 125% at end-2008.
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"Fitch believes Chinese LGs (local governments) likely have significant additional contingent liabilities arising from debts of LG-linked corporates," the company said.
The classification of lending between corporate and LG sectors (has) been opaque. Lack of transparency over the indebtedness of LGs is a shortcoming for China relative to peers."
Chinese local governments may have had CNY12.85-trillion (US$2.1-trillion) in debt at the end of last year, equal to about 25% of GDP, up from 23.4% at end-2011, Fitch said. Former finance minister Xiang Huaicheng said at the weekend that the country’s local government debt may have exceeded CNY20-trillion, almost double the figure given in a 2011 report by the National Audit Office.
The combined debt of China’s central governments and the nation’s provinces and cities may be more than 30-trillion yuan, Xiang, who served as finance minister from 1998 to 2003, said at the Boao Forum for Asia.
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