12 May 2015
China's debt sustainability issues: A major concern – Fitch warns
FXStreet (Mumbai) - Rising China's credit/GDP ratio raises doubts about the country's debt sustainability, Fitch credit ratings agency warned in a report published on Tuesday.
Fitch noted in its statement,
"China's credit/GDP ratio is one of the highest among larger economies, yet credit growth continues to outstrip real GDP growth, which is slowing,"
"The interest-cost burden of servicing the debt has risen to an equivalent of around 15% of GDP, exceeding nominal GDP growth, which has fallen to below 10%. Interest-rate liberalization leading to higher funding costs will add to this burden, adding further to China's debt sustainability issues,"
"Due to the rapid rise in leverage and widespread use of real estate collateral since 2008, Fitch believes a steep fall in property prices could lead to a credit crunch and force deleveraging by corporate borrowers with a compounded negative effect for banks and the real economy."
Fitch noted in its statement,
"China's credit/GDP ratio is one of the highest among larger economies, yet credit growth continues to outstrip real GDP growth, which is slowing,"
"The interest-cost burden of servicing the debt has risen to an equivalent of around 15% of GDP, exceeding nominal GDP growth, which has fallen to below 10%. Interest-rate liberalization leading to higher funding costs will add to this burden, adding further to China's debt sustainability issues,"
"Due to the rapid rise in leverage and widespread use of real estate collateral since 2008, Fitch believes a steep fall in property prices could lead to a credit crunch and force deleveraging by corporate borrowers with a compounded negative effect for banks and the real economy."