Fitch cuts China local currency debt rating

Chinese banks rapidly expanded credit in the market after the global financial crisis to boost growth

Fitch Ratings has downgraded China's sovereign credit rating, warning about a credit build-up in the economy that could threaten the recovery.

The agency cited "underlying structural weaknesses" and a growing risk from shadow banking.

The downgrade is for yuan-denominated debt, not foreign currency debt.

Some analysts have raised concerns over China's debt levels since 2009, when state-owned banks gave out a massive amount of loans to boost growth.

Fitch downgraded China's long-term local currency rating from AA- to A+, the first major international agency to cut China's sovereign credit rating since 1999.

It said total credit in China may have reached 198% of gross domestic product at the end of 2012, up from 125% in 2008.

That includes a contribution from what is known as shadow banking, lending by non-bank institutions or bank credit that is kept off the books.

"The proliferation of other forms of credit beyond bank lending is a source of growing risk from a financial-stability perspective," Fitch Ratings said.