By Linda Young

Beijing, China

Credit-rating agency Fitch warned it might downgrade China's credit rating within the next two years because of bad debts held by local governments could lead to systemic stress.

Fast-paced growth in loose credit created the problem. There was an over-extension of loans to local governments, and China's central government failed to fund the debt before the financial crisis hit. Now there are questions over whether municipal governments have the medium-term ability to repay the loans.

Ratings agency Moody's in July expressed similar concerns.

Moody's had warned that bad debts could total 8 to 10 percent of all loans and amount to $548.29 billion more than auditors had originally estimated. China's government had earlier reported local government debt at $1.68 trillion.

Loans issued within the last 5 years total around 55 percent of China's gross domestic product, Fitch said.


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World - Credit Rating Agency Fitch Warns It Might Downgrade China's Debt | Global Viewpoint