September 18, 2013 / 5:21 AM / 4 years ago

Fitch: Indebtedness in China Still Climbing

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Chinese Banks: Indebtedness Continues to Rise, With No Deleveraging in Sight here BEIJING/HONG KONG, September 18 (Fitch) Fitch Ratings says leverage continues to rise rapidly in China's economy and talk of deleveraging, or contracting credit, is misplaced. Certain channels of credit are shrinking, but overall extension remains high, with the stock of credit on pace to rise 20% in 2013, Fitch says in a Special Report published today. The agency believes that China's economic growth and financial stability can be maintained over the near- to medium-term, but the longer that credit growth outpaces GDP expansion, the greater the longer-term challenges. Even in a positive case - in which credit growth slows by 2pp annually to 12% while nominal GDP growth holds at 11% - credit/GDP would be pushed to near 250% by end-2017 (2008: 130%). China's financial sector has some unique features that make such high leverage more manageable than elsewhere. Yet no financial system can sustain rising leverage indefinitely. Eventually, swelling debt burdens will constrain economic activity as greater resources are directed into debt-servicing and further investment exacerbates overcapacity. Interest owed by borrowers has risen to an estimated 12.5% of GDP in 2013 from 7% in 2008. By end-2017, this will rise to 16% of GDP in a positive case of stable interest rates and GDP growth, while more realistic scenarios point to 19%-22%. Such high interest and debt may ultimately overwhelm borrowers, while at the same time placing a practical limit on the extent of interest rate liberalisation. The report, "China Banks - Indebtedness Continues to Rise, With No Deleveraging in Sight", is available on www.fitchratings.com or by clicking on the link above. Contact: Charlene Chu Senior Director +8610 8517 2112 Fitch Ratings (Beijing) Ltd. 1903, 19/F, PICC Tower 2 Jianguomenwai Avenue Beijing 100022 Chunling Wen Associate Director +8610 8517 2105 Hiddy He Associate Director +8610 8517 2135 Jonathan Cornish Managing Director +852 2263 9901 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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