International rating agency Fitch has released a report indicating that the Chinese economy may be riddled with toxic loans worth 10 times the official estimates. The report further indicated that resolving the issue may lead to a capital shortfall worth $1.1 to $2.1 trillion, constituting 11 to 20 percent of the Chinese economy. China is currently rated as A+ by Fitch Ratings.

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The report said that the rate of increase in non-performing loans is currently between 15 to 21 percent, and it is increasing further. Fitch warned that if appropriate measures are not taken, the salvage measures may cost as much as a third of the country's GDP within next two years.

The current official estimates for non-performing loans stands at 1.8 percent. However, the report claims that banks are offloading or writing off loans with increased frequency. Banks are reportedly using various accounting tricks to shuffle such non-performing loans. In many cases, loans which are overdue are not considered bad debts. Another concern is about the efficiency of credit.

The Telegraph revealed that public debt in China has grown to 55 percent of its GDP. The credit constituted 243 percent of the country's GDP by the end of 2015, twice the level it was in 2008. China's banking system assets are now 1.3 times bigger than the US commercial banking system.

CNBC quoted Fitch stating that the Chinese government may help in solving the situation. However, any such measures are likely to have a negative impact on the country's credit rating. Fitch currently ascribes a stable outlook to China. 

TagsFitch Ratings, china, Toxic Debt, GDP