China debt: will self-disclosed scandal bring back ratings credibility after series of bond defaults?
- China has become the world’s second largest bond market after the US, attracting 600 billion yuan (US$91.7 million) of inflows in the first eight months of 2020
- But a series of recent defaults of several top rated state-owned enterprises has hurt the credibility of home-grown bond rating services
China’s authorities have renewed efforts to restore the credibility of home-grown bond rating services and rebuild the country’s credit culture with the previously rare public exposure of a string of scandals and punishments.
The market panic eventually forced the Financial Stability and Development Committee, the top financial regulatory body headed by Vice-Premier Liu He, to step in to anchor investor confidence, but questions over local governments would still honour the implicit guarantees of the debt of their SOEs and overly favourable ratings by domestic ratings agencies, remained high.
On Monday, state-owned Golden Credit Rating, which generated 263 million yuan (US$40.2 million) in revenue last year, was suspended from issuing new securities ratings for three months soon after the Central Commission for Discipline Inspection charged its general manager and another executive with taking bribes from firms in exchange for high ratings of their corporate debt.
Bond ratings in China are highly skewed, reflecting both stringent issuance requirements and implicit guarantees
It is another major punishment after Dagong International was suspended from conducting new securities ratings for a year in 2018 after it overcharged for providing counselling to rated companies.