Fitch cuts China local currency debt rating

Yuan notes Chinese banks rapidly expanded credit in the market after the global financial crisis to boost growth

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Fitch Ratings has downgraded China's sovereign credit rating, warning about a credit build-up in the economy that could threaten the recovery.

The agency cited "underlying structural weaknesses" and a growing risk from shadow banking.

The downgrade is for yuan-denominated debt, not foreign currency debt.

Some analysts have raised concerns over China's debt levels since 2009, when state-owned banks gave out a massive amount of loans to boost growth.

Fitch downgraded China's long-term local currency rating from AA- to A+, the first major international agency to cut China's sovereign credit rating since 1999.

It said total credit in China may have reached 198% of gross domestic product at the end of 2012, up from 125% in 2008.

That includes a contribution from what is known as shadow banking, lending by non-bank institutions or bank credit that is kept off the books.

"The proliferation of other forms of credit beyond bank lending is a source of growing risk from a financial-stability perspective," Fitch Ratings said.

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