China is tightening scrutiny across the credit rating industry

BEIJING (Reuters) – China moved to tighten scrutiny over their credit rating industry on Sunday, issuing draft rules aimed at strengthening the long-term blame industry for reducing rates in the country’s $ 4.4 trillion corporate bond market.

China’s credit rating agencies are being asked to improve their credit rating models, strengthen corporate governance and strengthen information disclosure, according to rules published by five government agencies including the central bank and the ministry of finance.

The rules are also designed to create a better ecosystem where bond issuers do not interfere with credit rating decisions, investors rely on multiple rating sources, and regulators reduce the credit rating bar that is essential for some types of bond investors, they said. People’s Bank of China in a statement on its website.

The rules will shift more burden on ranking organizations, and “lead them to see reputation as the foundation of survival”, according to the statement.

China has taken a step in opening up their large bond market to foreign investors. Beijing has also decentralized the country’s credit market to global players such as S&P Global Ratings and Fitch Ratings.

But bond credit ratings in China have long been a complaint for investors.

Late last year, China’s bond regulator exposed the risk of tightening credit ratings and widespread appraisal industry deficits, after defaults from high-end state-owned enterprises led to a market crash.

Rules unveiled on Sunday urge rating agencies to increase the consistency, accuracy, and timeliness of credit ratings, and build a quality monitoring system using core-to-core ratios.

Organizations are also encouraged to submit independent rankings, and are urged to take steps to avoid conflicts of interest and strengthen internal control.

Government bodies that issued the rules together also include the National Development and Reform Commission (NDRC), the China Securities Regulatory Commission (CSRC) and the China Banking and Insurance Regulatory Commission (CBIRC).

(Reporting by Samuel Shen and Ryan Woo; Editing by Michael Perry)