China's investment-led development model is facing increasingly serious constraints, a global ratings agency warned, although GDP growth is likely to reach 8 percent in 2013.

Rapidly expanding credit, especially debt-financing by local governments, is one of the prime reasons behind the warning, Fitch Ratings said.[Hong Kong Company Formation & Registration]

The agency announced on Tuesday a currency sovereign rating of AA- for China, on a negative outlook, while it kept its stable outlook of A+ for the country's foreign debt holdings. Rapidly expanding credit may risk balance sheets, it said.

"China has been avoiding the so-called hard landing. However, rebalancing

will be a long-term challenge," Andrew Colquhoun, head of the agency's Asia-Pacific Sovereigns section, said.

"Rebalancing is imperative but not optional, because the debt issue is tightening constraints on the old investment-driven growth model," he said.

The total amount of credit in China's economy is currently about 190 percent of GDP, up from 124 percent at the end of 2008, Colquhoun said. "So the debt level is increasing substantially."

This debt could come from local government financial vehicles, guarantees, support from the banks or other routes, he said.

Colquhoun predicted that China's credit may expand at a pace of 15 percent year-on-year in 2013.[company registration in Hong Kong, Hong Kong company incorporation]

He also warned that the shadow banking system may increase potential risks for the stability of the country's financial sector.

The agency expected that the macro-economic backdrop will be supportive of sovereign credit in Asia this year.

"Asia is likely to remain the world's fastest-growing region with growth of about 6.4 percent in 2013, picking up from 6 percent in 2012," Colquhoun said.

Key risks facing the region include the US fiscal position and eurozone stability, he added.

In another development, Justin Yifu Lin, a former World Bank chief economist and senior vice-president, predicted China would see its GDP growth reach 8.5 percent in 2013, and probably maintain that figure for the next decade.

"But as a developing and transitional economy, China certainly faces many challenges to tap into this potential," Lin said at a forum jointly held by the National Committee on US-China Relations and the China Center for Economic Research in New York on Monday.

Even with the best economic models as measurement, Lin said, the Chinese economy is like a glass that's half-full or half-empty, depending on how it's viewed.

His GDP forecast was based on China's quest for growth driven by consumption by the growing middle class as well as expected acceleration from the comparatively slow growth of 2012.

Among the challenges China faces, according to Lin, are income disparity and corruption, which combined could produce social tensions, and the need to exert discipline in tackling these problems.

The world's second-largest economy slowed to a growth rate of 7.4 percent in the third quarter of 2012, the seventh consecutive slowing down amid the contraction of industrial sectors and weakened external market demand.[Company Registration in USA]

Economic indicators, including industrial output, fixed-asset investment and consumption, have shown signs of a rebound since the fourth quarter, which consolidated the market expectation of GDP growth about 7.8 percent during October to December.

Economists predicted that the whole-year growth for 2012 would beat the 7.5 percent target.

Greater domestic consumption and infrastructure investment will support the rebound, according to a report by the Institute of Economic Research at Renmin University of China.

"China's domestic market is growing rapidly, and this will remain a key driver for the country to maintain economic growth," said Wang Jianye, chief economist at the Export-Import Bank of China.

"While domestic investment has and will generate economic growth in the coming years, China's stable fiscal policy will also help the country's stable growth," he added.