China’s sovereign credit rating has been cut by a big international agency for the first time since 1999 with Fitch raising concerns yesterday that the country’s rising debt problems will require a government bailout.
Fitch cut China’s long-term local currency rating from AA- to A+ yesterday, citing “underlying structural weaknesses” including low average incomes, lagging standards of governance and a rapid expansion of credit.
It also warned of the growing risks from the rise of shadow banking and said total credit in China may have reached 198 per cent of gross domestic product by the end of last year, up from 125 per cent in 2008.
China has faced concerns over debt levels since 2009, when state-owned banks issued a wave of loans to power the economy through the global financial crisis. This kept growth on track but inflated housing prices and saddled local governments with enormous loans.
“Ultimately, we think China’s debt problem is going to require sovereign resources to resolve and debt will migrate onto China’s sovereign balance sheet,” said Andrew Colquhoun, head of Asia sovereign ratings at Fitch.
Fitch’s rating is a notch below those of Moody’s and Standard & Poor’s, which both upgraded their views on the economy in late 2010. Fitch already rated China’s foreign currency debt as A+, which Mr Colquhoun said was “relatively high”.
Beijing has waged a campaign to rein in the real estate sector, raising mortgage downpayments and barring people from buying second homes in the hottest markets. Partly as a result, last year China recorded its lowest growth rate for a decade.
To prevent local governments from accumulating more debt, it has stopped them using financing vehicles to get round restrictions on borrowing from banks.
But some analysts fear that a big rise in financing through the shadow banking system has damped the effect of those controls. Overall credit flows have stayed extremely strong, rising 23 per cent last year, even as Beijing has capped the increase in formal bank lending.
Fitch also said China had a “less favourable record on inflation management” than its A-rated peers, though data out yesterday showed a sharp drop in price rises in March.
Additional reporting by Alexandra Stevenson
惠誉对中国的评级比穆迪(Moody’s)和标准普尔(Standard & Poor’s)对中国的评级低一档，后两家评级机构都在2010年末期上调了其对中国经济的展望。惠誉已将中国的外币债务评级为A+，高瀚德称，这个评级是“相对较高的”。