Landmark rating regulation to boost China’s bond market | FT Alphaville

Landmark rating regulation to boost China’s bond market

China will introduce new provisional rules next week governing the credit rating of fixed income securities and listed companies, in a further effort to bolster the country’s nascent corporate bond market, reports

The new rules, drawn up by the China Securities Regulatory Commission (CSRC), stipulate that only qualified Chinese credit-rating companies competent in “securities market credit rating services” will be authorised to rate bonds, asset-backed securities and other fixed-income securities, as well as their issuers. In addition, says FinanceAsia, such ratings will now be mandatory.

According to a Monday report on China Daily’s website, the credit rating rules involve assets either authorised by the CSRC or listed on the stock markets. The corresponding issuers, listed companies, non-listed public companies, securities companies and fund management companies that invest in securities also fall under these regulations.

The new regulations, which come into force September 1, are an important step towards a unified set of criteria designed to promote both efficiency and transparency of China’s securities market and bring it in line with international standards, notes FinanceAsia.

There are currently four dominant credit rating agencies in China: China Chengxin International Credit Rating, China Lianhe Credit Rating, Dagong Global Credit Rating, and Shanghai Far East Credit Rating. Although they use similar rating criteria as Fitch, Moody’s, and S&P, none are fully independent or self-sufficient and all lack credibility due to the state’s heavy involvement, says FinanceAsia.
The credit rating rules follow Beijing’s decision to allow listed Chinese corporates of a certain rating to raise funds domestically, subject to CSRC approval. According to FinanceAsia, they are also an attempt to liberate corporate bond issuance from government control and to facilitate access to market.

The CSRC will now become the chief regulator for such issues, granting approval based on a company’s assets, credit rating, internal controls and financials, FinanceAsia adds.