Fri, Jan 15, 2010 - Page 11 News List

Fitch Ratings warns of ‘unsustainable’ China credit boom

AFP , BEIJING

Fitch Ratings yesterday warned that China’s credit boom was “unsustainable,” adding that stimulus spending in response to the global financial crisis risked creating serious financial distress.

However, the ratings agency affirmed its sovereign credit ratings for China, citing the country’s exceptional financial position, its recent economic performance and low government debt levels.

The firm called China’s estimated 8.4 percent growth last year impressive amid a global recession, but warned conditions in the country had increased imbalances in the economy and risks in the banking system.

“The agency believes the surges in both investment spending and credit growth are unsustainable. If left unaddressed, this could lead to serious financial distress in the medium-term with sovereign rating implications,” Fitch said.

The agency said Beijing’s recent economic policy, including stimulus spending focused on infrastructure and returning to an exchange rate effectively pegged to the dollar, had set back the rebalancing of China’s economy.

However, Fitch set China’s long-term foreign currency and local currency issuer default ratings at “A+” and “AA-” respectively, meaning the risk of it not meeting its commitments was low.

It added that the outlook on the ratings was “stable.”

It forecast China’s economy would grow 9.3 percent this year, but cautioned that similar growth rates could be difficult in the medium term without exports rising sharply or increased domestic consumption.

Standard and Poor’s affirmed China’s “A-1+” short-term rating and an “A+” long-term rating on Tuesday.

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