Fitch says downgrade prompted by govt debt

Fitch Ratings said in a media teleconference Wednesday that its downgrading of China's local currency sovereign rating was a result of a normal review schedule rather than some specific trigger.

The agency downgraded China's local currency rating Tuesday by one notch to A+ with a stable outlook from AA- with a negative outlook.

"The A+ is a high rating, among the highest for any emerging market sovereigns," Andrew Colquhoun, Fitch's head of Asia-Pacific Sovereigns, said at the teleconference.

The local government debt situation has not improved since Fitch Ratings' last review in April 2011, and this is the main reason for the downgrade rather than some other specific event, he said.

Fitch estimates that China's local government debt has reached 13 trillion yuan ($2.1 trillion), or a quarter of China's GDP, while the overall government debt to GDP ratio is above 49 percent, not far below the "A" range median of 51.2 percent, Colquhoun noted.

Fitch believes that local governments in China may have significant additional contingent liabilities arising from debts at local firms.

However, China's local governments possess a huge amount of assets, and Fitch's failure to take these assets into account has led to an exaggeration of the risks, Ba Shusong, vice president at the Development Research Center of the State Council, said on his personal Weibo Tuesday in response to Fitch's downgrade.