China’s uneasy relationship with foreign credit ratings firms
Offshore players should gird themselves for accusations of China bashing from across the spectrum, observer warns
The jury is still out on just how much Beijing will tolerate negative views as it opens the door to foreign rating agencies in a bid to woo offshore investors to its US$9 trillion onshore bond market, analysts say.
On the sidelines of the launch of a one-way bond connect on Monday, central bank deputy governor Pan Gongsheng said foreign firms could “very soon” be allowed to rate onshore bonds, a long-awaited breakthrough.
Under the new regime, foreign players such as Moody’s, Standard & Poor’s and Fitch Ratings would be able to do business directly rather than as junior partners in joint ventures.
But political economist Hu Xingdou, from the Beijing Institute of Technology, said foreign credit rating agencies should be prepared to deal with accusations of China bashing, discrimination or unfairness from senior officials, state media and nationalists.
“China used to behave in this way and many people are still immature in the face of something that is not a song of praise,” Hu said.
Earlier this year, the Ministry of Finance lashed out at Moody’s for downgrading China’s sovereign rating, claiming the agency was ignorant of the country.
Li Daokui, a former member of the national monetary policy committee and a Tsinghua University professor, said the Moody’s assessment was like “a very short guy who never played basketball criticising the basketball skill of Michael Jordan”.
Until now, ratings of the onshore bond market, the world’s third biggest, have been dominated by local firms, which have often been generous in their assessments. Over half of the rated mainland corporate bonds by the end of last year enjoyed a top-notch rating.
In 2011, central bank chief Zhou Xiaochuan said the country needed to support local rating agencies partly because the top three international players failed to flag risks in the global financial crisis.
Orient Capital Research managing director Andrew Collier said the opening of the rating market to foreign firms was good news for investors buying Chinese bonds. “Independent foreign companies would be in a position to provide an unbiased view of Chinese corporate bonds,” Collier said. “But the real question is whether they will feel subtle pressure to alter their ratings to suit local interests, such as state firms or private firms that would quietly drop their business if they don’t receive a good credit rating.”
Mei Xinyu, a researcher at a Ministry of Commerce think tank, said the decision to open the door to foreign rating agencies showed Beijing was more confident about the onshore bond market. Mei said the market was big enough that it could not be “easily manipulated by Western players”.