Tue, Oct 14, 2003 - Page 11 News List

Fitch revises outlook for foreign currency rating


Fitch Ratings said yesterday it has revised the outlook for China's A-minus long-term foreign currency rating to positive from stable, based on exceptionally strong external finances.

Despite the revision, the agency also warned the ratings remain constrained by domestic weakness, notably in the banking sector, and by fears over unsustainably rapid rates of credit and investment growth.

These problems, combined with expectations of an appreciation in the yuan are a continuing risk to an economy in danger of overheating.

China's A long-term local currency rating remains on a stable outlook, Fitch said.

China's official foreign currency reserves have been boosted by a continuing strong balance of payments and are likely to exceed US$400 billion by year-end.

The figure is twice as large as China's gross external debt, and up from US$286.4 billion at the end of last year. Fitch said this level of reserves offers "a virtually unassailable liquidity cushion against external shocks."

China is now the world's third-largest creditor nation, with net external assets of nearly US$360 billion and an international liquidity ratio of 1,000 percent, the highest of any Fitch-rated sovereign.

"These strengths, combined with good prospects for export growth and inward investment render China all but immune to external shocks and strongly support foreign currency creditworthiness," Fitch said.

However, these strengths are mitigated by concerns over the medium-term risks to macroeconomic and fiscal stability posed by the rapid pace of credit growth and the weakness of the banking sector.

"Fitch is concerned by current unsustainably rapid rates of credit and investment growth," the agency said.

Bank lending rose 24 percent in the first half year-on-year and domestic credit to the non-government sector has now reached 140 percent of GDP, which is extremely high by international standards, it warned.

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