Key facts
- Generous credit ratings in China's bond market are introducing risks, according to S&P Global Ratings.
- Foreign issuers receive significantly higher ratings in China's domestic market compared to their global ratings.
- Nearly 90% of Chinese credit bond issuers are rated AA or higher, a stark contrast to the U.S. where only 4.4% hold such ratings.
- Chinese authorities are actively working to improve credit rating quality and reduce the concentration of top-tier ratings.
S&P Global Ratings has warned that the prevalence of high credit ratings in China's expanding bond market poses risks, particularly as foreign issuers are assigned significantly higher domestic ratings than their global counterparts. Christopher Lee, regional practice lead for Asia-Pacific at S&P Global Ratings, highlighted that this disparity introduces risk into the domestic market. He noted that approximately 90% of credit bond issuers in China receive ratings of AA or higher, a figure that stands in stark contrast to the 4.4% seen in the United States. Lee suggested that this situation is unsustainable and "will come to a head one way or another."
The concerns come as Chinese authorities are intensifying efforts to improve credit rating quality. Since April, China's central bank has reportedly been meeting with credit rating agencies to encourage a reduction in the concentration of AAA ratings, leading to some downgrades and withdrawals. The 37 trillion yuan ($5.5 trillion) credit bond market is crucial for corporate financing, and China is actively seeking to attract foreign issuers and investors. Lee acknowledged that regulatory efforts are moving in the right direction, emphasizing the need for a broader spectrum of credit differentiation as China opens its market.