China's stimulus programs have boosted economic growth, but they're also creating stability risks, Fitch said in a report on Monday.
For the fourth quarter of 2016, China's gross domestic product (GDP) picked up to 6.8 percent on-year, helping to boost full-year growth to 6.7 percent, which Fitch attributed to stimulus measures.
But the economic growth has come at the cost of delayed reforms and increased leverage, Fitch said in a report titled "China's stable growth reflects stimulus not sustainability."
"Short-term growth targets have been prioritized over some areas of structural reform, particularly efforts to reduce the economy's dependence on credit-intensive investment. Policy stimulus has succeeded in maintaining growth within the official target range, but it has come at the cost of a further build-up in leverage," Fitch said. "The rapid increase in credit required to keep GDP growing at its current rate strongly suggests that a sustainable rate of medium-term economic growth - in which leverage and broader imbalances stabilize - is well below the authorities' prevalent growth targets."
The effort to keep growth up to target levels has become a "more significant risk" to economic stability, Fitch said, noting that aggregate financing has been rising faster than nominal GDP, pushing up the country's debt-to-GDP ratio.