Analysis | Here’s why China is flooded with AAA-rated bonds: confusion and rivalry among regulators

There are several reasons foreign investors are afraid of putting their money into China’s massive debt market. One of the biggest is a suspicion of the country’s rating agencies who seem to undermine their own credibility by giving just about every bond the highest classification.

It may seem baffling. So why do they do it?

According to some of the nation’s top economic analysts and bond market players, it is the fault of the organisations that oversee the industry.

“A lot of people blame China’s rating agencies for adopting loose standards when evaluating the bond issuers. But they do not understand, it is not our fault – it’s the regulators,” said Mao Zhenhua, founder and chief economist of China Chengxin International Credit Rating, one of China’s four biggest rating agencies, on Sunday in Beijing.

So far, of the 1,500 bonds of publicly traded companies covered by these top four agencies, 70 per cent are rated AA or above, and a staggering 900 of them have been awarded the highest possible AAA, according to Bloomberg.

That makes international investors, who are used to a US dominated rating scale running from a high of AAA to a low of C – with a series of notches in between – suspicious about China’s bond market.