Fitch’s China Analyst Chu, Who Warned on Debt, Leaving Agency

Jan 09, 2014 2:20 am ET

(Updates with debt-to-GDP estimates in fifth paragraph.)

Jan. 9 (Bloomberg) -- Charlene Chu, a Beijing-based analyst at Fitch Ratings who said China could face a debt crisis after lending reached double the size of its economy, is leaving the company after almost eight years.

Her last day as senior director and head of China financial institutions will be Jan. 14, Chu, 42, said in an e-mail today. She’ll remain in the Chinese capital and is working on her cousin’s memoirs, she said. Chu has covered China’s banks for Fitch since March 2006.

Her warnings that China’s debt could spark a crisis preceded Fitch’s April downgrade of the country’s long-term local-currency debt rating, the first cut by one of the top three rating companies in 14 years. Albert Edwards, global strategist at Societe Generale SA, said in 2013 Chu was “a heroine” and “deserves a medal of honor for her stark warnings about the Chinese credit bubble.”

“I have to commend them for giving me the freedom to express what is a pretty negative view on China, despite the complications it has brought to Fitch’s own business development here,” Chu said. “One of the messages we’ve been communicating to investors is that even though the debt situation in China is extremely unhealthy and imbalanced, it could continue for some time.”

Unsustainable Model

Total lending from banks and other financial institutions in China was 198 percent of the nation’s gross domestic product in 2012, compared with 125 percent four years earlier, Chu said in an interview in May. That signals a crisis is brewing and the nation’s model of growth driven by bank lending is unsustainable, she said.

China had its worst credit crunch in late June as the central bank drove up interbank interest rates, with the benchmark seven-day repurchase rate reaching a record 10.77 percent on June 20. The People’s Bank of China is pushing lenders to cut their use of short-term funding from that market to finance long-term loans.

Fitch in 2011 started calculating its own measure of total credit in the economy by adding off-balance-sheet assets such as letters of credit, financing by non-bank institutions and offshore loans by foreign banks, to figures for all forms of financing in the economy published by the central bank.

“Charlene has made significant contributions to the analytical discourse at Fitch,” David Weinfurter, global head of the company’s financial institutions group, said in an e- mailed statement. Jonathan Cornish, head of the North Asia financial institutions group, will assume direct responsibility for China, according to the statement.

The company didn’t immediately reply to an e-mail seeking comment on how Chu’s views affected the company’s business.

Fed, Yale

Before joining Fitch, Chu worked as an analyst at the Federal Reserve Bank of New York, serving as a point of contact for the U.S. government on China’s monetary policy and the nation’s attempt to overhaul its financial system. Born and raised in Colorado, Chu holds an MBA and a master’s degree in international relations from Yale University in New Haven, Connecticut.

“There is always a possibility that developments heat up over the near term, in which case I will miss out on part of what could be a very interesting year,” Chu said in today’s e- mail.“But eight years is a long time to be in the same position, and it is time for something new.”

--Nerys Avery and Jun Luo, with assistance from Aipeng Soo in Beijing. Editors: Nathaniel Espino, Nicholas Wadhams