China's debt rating 'could be downgraded'

5 July 2011

The debt rating of China's banking system could be at threat of being downgraded to negative, it has been warned.

Moody's Investors Service - which maintains a presence in 26 countries - said that loans made by the country's lenders to local governments could have been miscalculated by a Chinese government agency to the tune of 3.4 trillion yuan ($541 billion).

The ratings agency noted the size of these handouts could put the nation's banking sector at risk - so the organisation suggested it may need to alter its credit rating for the nation.

Moody's came to its decision after inspecting data from China's National Audit Office (NAO) in June.

Yvonne Zhang, vice-president at the ratings group, commented: "When cross-examining the findings by the 27 June NAO report ... we found that the Chinese audit agency could be understating banks' exposures to local governments."

The information was compiled in conjunction with reports from China's banking regulators, she added.

By Asim Shah

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