The Chinese central bank has flagged stronger regulation of credit ratings agencies in the wake of a slew of bond defaults by major state-owned enterprises (SOE).
Pan Gongsheng (潘功胜), deputy governor of the People’s Bank of China (PBOC) and director of the State Administration of Foreign Exchange (SAFE), said that PBOC would work with other relevant authorities to “jointly strengthen supervision and management of the bond market ratings sector and strengthen market discipline.”
Pan made the remarks at the Credit Ratings Sector Development Forum convened by PBOC on 11 December.
“Credit ratings are the key, fundamental system for bond markets, and in recent years the ratings sector has obtained strong progress in areas including unification of regulations, improvements to regulation and external opening,” said Pan.
“There are still problems however, including falsely inflated ratings, inadequate distinctions, and weak advance warnings, which restrain the high-quality growth of China’s bond market.”
According to Pan PBOC will “drive advances in China’s ratings technology, raise the quality of ratings, increase the differentiation of credit ratings, further drive unification of ratings regulations, and truly employ the ‘gatekeeper’ role of ratings agencies for the bond market.”
Yu Chunjiang (俞春江), chair of the technical committee for Golden Credit Rating International, said to state-owned media that China is currently in the process of further opening up its credit ratings sector to both new domestic and foreign entrants.
“International credit ratings agencies have obtained approval to undertake ratings operations in China, and leading enterprises in the fintech sphere have also obtained registration as ratings agencies.
“The cancellation of the requirement of mandatory ratings for the public issuance of corporate bonds has accelerated the process of transferring demand for ratings from regulators to investors, and for this reason the credit ratings sector faces unprecedented change.”
Yu expects the diversification of credit ratings agencies to intensify, and more issuers to enter the bond market under the bond registration system, which means demand will increase.
At the same time “demand for investors to pay fees for ratings agencies will trend towards maturity, which could lead to ratings agencies being commissioned for ratings by both issuers and investors.”