China’s local-currency credit rating at Fitch Ratings may be cut on concern that increasing corporate and household debt is a risk to government finances.
The outlook for China’s long-term local-currency issuer default rating was lowered to “negative” from “stable,” Fitch said in a statement yesterday. The rating is currently AA-, it said.
China, the world’s fastest-growing major economy with about $2.8 trillion in foreign-exchange reserves, has raised interest rates four times since October to fight inflation. Premier Wen
Jiabao said last month that “exorbitant” home-price increases are a key concern as China seeks to rely more on domestic than foreign demand to power economic growth.
The negative outlook reflects concern over the scale of sovereign contingent liabilities, “especially against the backdrop of rising real-estate valuations and inflation,” Andrew
Colquhoun, head of Fitch’s Asia-Pacific sovereign unit, said in the statement. “Fitch expects some sovereign support for the banking system will be required.”
Loans to companies and households in China rose to about 140 percent of gross domestic product last year, from 111 percent in 2008, Fitch said. The increase is linked to property lending and local government financing, it said.
Lending Concerns
“Concerns over the quality of much of that lending are compounded by the rapid increase in new off-balance sheet channels of credit, for which disclosure is extremely poor,” the rating company said.
Wen, while visiting eastern China’s Zhejiang province, asked local governments to take responsibility to keep housing affordable and said stabilizing consumer prices is the top priority, according to a statement on the government’s website April 9.
Policy makers raised the minimum down payment for second- home purchases this year as the government focused on measures aimed at speculators, who are mostly targeting homes in major cities. Shanghai and Chongqing imposed taxes on residential properties, and affluent cities including Beijing and Guangzhou imposed restrictions on housing purchases.
The country’s other ratings are also affirmed with the long-term foreign currency IDR at A+ with a stable outlook; the short-term foreign currency IDR at F1 and the country ceiling A+, Fitch said.
