Fitch's Rating downgraded the China's Credit rating affirming that their banks are exposed to Shadow Financing

In its latest report Fitch's rating cuts the China's Long term Local currency credit rating from AA- to A+ with stable outlook adverting to wide range of financial risks due to their banks exposure to shadow financing.

China has underpinned its economy after 2008 global downfall with its Beijing Stimulus, a 4 trillion yuan stimulus, which made its economy boosted. But in China the credit has grown significantly faster than GDP since 2009. China experienced the second-fastest expansion of credit in real terms, behind only Qatar, between end-2009 and end-June 2012. China is the third-highest of any Fitch-rated emerging market with the stock of bank credit to the private sector was worth 135.7% of GDP at end-2012.

As Fitch believes total credit in the China's economy including various forms of "shadow banking" activity may have reached 198% of GDP at end-2012, up from 125% at end-2008. Only 55% of new social financing took the form of bank lending in the 12 months to February 2013, down from 76% in 2009. The rapid growth of other forms of credit beyond bank lending is a source of growing risk from a financial stability perspective.

Fitch's analysis suggests the indebtedness of local governments rose again in 2012. Fitch estimates China's general government debt at 49.2% of GDP at end-2012, not far below the 'A' range median of 51.2%. China's public indebtedness is therefore not a weakness, but neither is it a strength relative to its rated equals, underscoring the case for equalising the Foreign Currency and Local Currency ratings.

Fitch believes Chinese local governments likely have significant additional contingent liabilities arising from debts of local government-linked corporates. Further more, the classification of lending between corporate and local government sectors has been not clearly understood. Lack of transparency over the indebtedness of local governments is a shortcoming for China relative to its equals.

China's fiscal revenue base is lower (at around 23% of GDP) against the 2012 'A' range median (33%) and more volatile than the median for the 'A' range. China has a less favourable record on inflation management than 'A' range peers