THE government decision to evict McDonald's from a site in Beijing has grave implications for credit ratings in China, says independent rating agency Standard & Poor's (S & P). Chinese authorities had ignored a fundamental tenet of the credit rating process - that the parties would do what they said they were going to do - said James Penrose, assistant general counsel for the agency, yesterday. 'If they don't, we can't quantify the risk,' said Mr Penrose, in Hong Kong for an S & P conference on project finance. 'The whole rating process is a statistical process. If you have a situation where the whole element of trust and predictability has been undermined, the whole process comes to naught.' S & P rates almost US$2 trillion worth of corporate and public sector debt, with ratings on companies and governments in more than 50 countries. Mr Penrose said it was important that before a transaction closed every regulatory entity with jurisdiction over the transaction had given its assent to the deal so the government could not later say it was not authorised. The agency was concerned also with ensuring investors were as far as possible secured, he said, 'which means they have a first prior lien on the assets'. 'That's very hard to do under Chinese law at the moment,' Mr Penrose said. China had come under fire in recent weeks over its decision to order the fast-food giant to vacate the outlet to make way for commercial and residential complex Oriental Plaza, planned by tycoon Li Ka-shing. The 28,000 sq ft site is the largest McDonald's restaurant in the world and McDonald's has land rights to the site for 20 years. McDonald's has seven branches in Beijing and plans to open 10 outlets next year. The company said it had not decided on whether to take legal action, but a high-ranking Beijing official said last month he thought legal action was 'a reasonable way' to deal with the dispute. Mr Li denied that he used his China connections to drive the fast-food chain out of its location and had refused to confirm whether Cheung Kong had signed a land-use agreement with Beijing for the site. Mr Penrose raised general issues of enforceability as an area that the agency bore in mind when it looked at credits. 'What I mean by this is the ability of the parties to rely on each other to live up to their end of the bargain,' he said. Last month, Paul Coughlin, who is to head the agency's new office in the territory, warned that the mainland's BBB credit rating was unlikely to change until its political structure was clarified. He said the mainland lacked transparency, and its ability to raise offshore debt might suffer as a result. S & P had rated six bond issues from China, but Mr Coughlin said: 'While that number will grow, don't expect the number of issues to the United States and Europe to grow until ambiguities are ironed out.' Mr Penrose's comments come at a time when S & P is stepping up its activities in the region in response to increased debt issuance.