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          Fitch reaffirms China's foreign currency rating

          Fitch reaffirms China's foreign currency rating

          Updated: 2012-04-12 07:10

          (Xinhua)

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          LONDON - Rating agency Fitch reaffirmed China's foreign currency rating at A+ with a stable outlook on Wednesday.

          "Fitch expects more debt to migrate onto China's sovereign balance sheet as the economy works through the aftermath of the credit surge of 2009-2011, primarily impacting the local currency rating, which remains on negative outlook," Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch, said.

          "The ratings balance China's strong narrowly-defined sovereign finances against broader contingent liabilities and structural weaknesses including unresolved problems in the banking system," he added.

          According to the agency, China's key rating strength is its strong on-balance-sheet public finances. China's sovereign net foreign asset position at end-2011 was worth 44 percent of GDP, the second-strongest in the A range, underpinned by the world's highest reserves stockpile of $3.2 trillion.

          Explicit sovereign debt remains modest, however. Central government debt was only 17.5 percent of GDP at end-2011, while fiscal deposits were worth 5.5 percent of GDP. Fiscal deposits exceed sovereign debt maturities which are projected to be about 2 percent of GDP this year.

          The total amount of credit in China's economy rose rapidly amid credit-fuelled stimulus and its aftermath in 2009-2011. Banking system assets rose to 238 percent of GDP by end-2011, from 204 percent at end-2008.

          In a statement, Fitch said it had concerns that the banking system will face rising loan impairments over the medium term following this credit surge. This could impact the supply of credit to the broader economy, affecting growth, or lead to a requirement for sovereign financial support to the system, the agency said.

          China's ratings benefit from a record of strong economic growth stretching back to 1991. However, the outlook for 2012 is more moderate. Fitch projects China's GDP growth at 8 percent in 2012 and 2013, below the 2007-2011 average of 10.5 percent, as the economy works off excesses in the real estate sector and policy is gradually eased to keep a lid on inflation and house prices.

          "The unwinding property market poses some risk of a so-called hard landing, although Fitch believes the authorities' scope for policy flexibility inclines against such a negative outcome," said Colquhoun.

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