Fitch Ratings warned Friday that China's growing debt could trigger "economic and financial shocks", but said it will maintain the country's A-plus rating with a stable outlook despite its concerns.
The announcement follows Moody's shock decision in May to downgrade the world's second-largest economy for the first time in almost three decades on concerns over its ballooning credit and slowing growth.
While China's external finances were robust and near-term growth prospects "favourable", Fitch said "large and rising debt levels" in its non-financial sector were a significant risk.
"Overall leverage in the context of continued adherence to ambitious GDP growth targets raises the potential for economic and financial shocks," it added.
Debt-fuelled investment in infrastructure and property has underpinned China's rapid growth, but there are widespread concerns that years of freewheeling credit could lead to a financial crisis with global implications.
Beijing has been clamping down on bank lending and real estate purchases but those efforts are complicated by the government's determination to meet its full-year growth target of around 6.5 percent.
That compares with last year's pace of 6.7 percent, which was the slowest in around a quarter of a century.
Premier Li Keqiang said last month that China could meet the target.
In a positive sign for China, capital outflows have "fallen sharply" since early this year and the current account -- a key gauge of the economy's health -- remains in surplus.
But Fitch said tighter monetary conditions could lead to slower growth next year of 5.9 percent.
"Macro-prudential regulations and tighter credit conditions will, in Fitch's forecasts, result in a slowdown in the housing sector and investment spending," it said.
Fitch Ratings warned Friday that China’s growing debt could trigger “economic and financial shocks”, but said it will maintain the country’s A-plus rating with a stable outlook despite its concerns.
The announcement follows Moody’s shock decision in May to downgrade the world’s second-largest economy for the first time in almost three decades on concerns over its ballooning credit and slowing growth.
While China’s external finances were robust and near-term growth prospects “favourable”, Fitch said “large and rising debt levels” in its non-financial sector were a significant risk.
“Overall leverage in the context of continued adherence to ambitious GDP growth targets raises the potential for economic and financial shocks,” it added.
Debt-fuelled investment in infrastructure and property has underpinned China’s rapid growth, but there are widespread concerns that years of freewheeling credit could lead to a financial crisis with global implications.
Beijing has been clamping down on bank lending and real estate purchases but those efforts are complicated by the government’s determination to meet its full-year growth target of around 6.5 percent.
That compares with last year’s pace of 6.7 percent, which was the slowest in around a quarter of a century.
Premier Li Keqiang said last month that China could meet the target.
In a positive sign for China, capital outflows have “fallen sharply” since early this year and the current account — a key gauge of the economy’s health — remains in surplus.
But Fitch said tighter monetary conditions could lead to slower growth next year of 5.9 percent.
“Macro-prudential regulations and tighter credit conditions will, in Fitch’s forecasts, result in a slowdown in the housing sector and investment spending,” it said.
