Fitch downgrades China's yuan debt outlook to 'negative'

Ratings agency Fitch on Tuesday downgraded its outlook on China's local currency debt rating from "stable" to "negative" as on concerns over a huge rise in potentially destabilising easy credit. Fitch's rating for China's yuan-denominated debt rating currently stands at "AA-", four notches below its top classification. Fitch's decision implies that it could, in the medium-term, decide to downgrade the rating of the local currency debt of the second largest economy in the world.
That is despite the fact that China holds the world's largest stock of foreign currency reserves, some $2.8 trillion at the end of 2010, according to Fitch, which makes it almost invulnerable to external shocks. However, the ratings agency argued that "elevated credit growth, the sharp rise in real estate valuations, and more recently the emergence of inflation pressures have ... increased the risks to macro-financial stability."