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Fitch downgrades China's local currency rating
The rating agency said it downgraded China's long-term local currency issuer default rating to A+ from AA-, with a stable outlook
Fitch lowered its outlook on China's long-term local currency assets in April 2011, on concerns about an expansion in lending to fight the effects of the global slowdown after the financial crisis hit.
It announced the news of the downgrade on its website on Tuesday, adding that it affirmed the long-term foreign currency rating at A+, but it did not publish a statement explaining the decision. A conference call on the decision is scheduled for Wednesday.
In a statement emailed to Bloomberg, Fitch said it was concerned about the debt of local governments (LGs).
"Fitch believes Chinese LGs likely have significant additional contingent liabilities arising from debts of LG- linked corporates," Fitch said in the statement quoted by Bloomberg.
It added that the classification of lending between corporate and LG sectors had been opaque. "Lack of transparency over the indebtedness of LGs is a shortcoming for China relative to peers," Fitch said.
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In another statement, quoted by the FT, Fitch said that China's investment-growth model faced "tightening constraints as the share of investment in gross domestic product approaches the level of domestic savings."
"The process of rebalancing the economy towards consumption could lead to the economy’s performance becoming more volatile", Fitch said in the statement.
The agency also said that total credit in China may have reached 198% of GDP by the end of last year, up from 125% in 2008, according to the FT.
Earlier this month, analysts issued optimistic forecasts for China's economy, saying that the first quarter of this year could be the last one with slower growth.
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