The Chinese Credit Rating Industry: Internationalisation, Challenges and Reforms

Abstract

Chinese credit rating agencies play a key role in China’s economic reforms and the modernisation of the Chinese bond markets at a time when the Chinese bond market holds the second largest position in the world. This article provides a critical analysis of the internationalisation and challenges of the Chinese credit rating agencies in order to provide an updated understanding of the Chinese credit rating system. It evaluates the legal framework of the Chinese credit rating system and its recent reforms, with a view to providing some critical evaluation of the weaknesses and strengths of China’s approach in dealing with major problems facing the Chinese rating industry. In order to boost the bond market, China embraced a new era of internationalisation, which was set to change the landscape of the Chinese rating industry. China showed new momentum in tightening the discipline of its domestic credit rating agencies and started to allow SOEs to default in more recent times. Moreover, the current legal framework governing the Chinese rating industry provides a robust protection for rating victims, although it lacks strength in dealing with other major defects of the industry, such as conflicts of interest and lack of transparency.