SHANGHAI -- Fitch Ratings Inc again warned of significant risks to China's banking system over the next few years, saying the property market poses the biggest threat.

A Fitch analyst said at a seminar the ratings firm was more concerned about the property sector than local government financing vehicles, even as the latter have taken on substantial amounts of debt.

"We believe that the LGFV issue is much easier to deal with than property for two reasons," said Charlene Chu, head of China financial institutions at Fitch.

"The government has done a lot of work to identify these loans," she said. "Property on the other hand is very difficult to deal with because it's penetrating every aspect of the economy and you can't isolate the problem and throw money at it in the way you can for the local government issue."

China's easy monetary policy in 2009 and 2010 fueled a rise in inflation and a property bubble. Credit risk has risen as a result of heavy lending to local governments and property firms.

Ms Chu told the seminar Wednesday that compared to banks' exposure to local government financing vehicles, the property market is "more intractable and much more complicated to deal with."

Real estate has been the foundation of China's supercharged growth over the past two decades, and the market's health is crucial to the construction, steel and cement sectors. Local municipalities and provinces receive funds from land sales and rely on high land prices to fund infrastructure projects.

Central bank data showed that a quarter of new yuan loans issued last year were related to the property sector, including mortgages. Analysts believe the share was much bigger in 2009, the first year of China's two-year campaign of heavy spending to cushion the impact of the global financial crisis.

While the central government has launched a series of measures to cool property prices, including higher mortgage rates and curbs on purchases of second homes, housing prices remain high in big cities including Shanghai, Beijing and Shenzhen.

"Clearly the government has done a lot to cool down the market and to some extent it has been successful... [But] the jury is still out," said Ms Chu.

She noted that some in the investment community see lending curbs as measures that will only have a temporary effect.

In April, Fitch revised its outlook on China's long-term local-currency default risk to negative from stable, warning that a lending binge by state-owned banks could leave the government on the hook. Fitch analysts said in the report the Chinese government will likely intervene to support banks if more companies default.