WSJ: “Fitch Ratings Inc. lowered one of its key ratings on China’s government debt, in one of the most prominent warnings to date over a credit buildup in the world’s second-largest economy.
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The downgrade applies only to China’s yuan-denominated debt, which is primarily traded domestically—not the foreign-currency debt that it issues in international financial markets, so it is unlikely to have a big impact on global financial markets.
Nevertheless, it is the first outright downgrade in years of debt that is widely seen as buffered by China’s vast foreign-exchange reserves, highlighting a growing perception that massive lending by China’s banks, as well as shadowy nonbank lenders that operate under little regulation, could seriously disrupt China’s economic recovery.
Much of China’s debt came from a surge of lending in the wake of the 2008 global financial crisis, which helped Chinese growth rebound in part with the help of massive infrastructure projects but weighed down local governments and banks with loans. Analysts at Fitch have been part of a chorus of analysts and market players consistently sounding alarms about the run-up in China’s debt.
Saying that “risks over China’s financial stability have grown,” the credit-ratings firm lowered China’s long-term local-currency rating to single-A-plus from double-A-minus, with a stable outlook. It was its first downgrade of Chinese debt since at least 1997. It kept China’s foreign-currency debt rating unchanged at single-A-plus, saying it is well supported by China’s foreign-exchange reserves, worth $3.387 trillion at the end of 2012.
Bank credit extended to the private sector was equivalent to 135.7% of China’s gross domestic product at the end of 2012, the highest level of any emerging-market economy rated by Fitch, it said.”
via Fitch Lowers Rating on China Local-Currency Debt – WSJ.com.
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