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Chinese Rating Agencies Completely Ignore Corporate Debt Risks

Well-known Chinese news site Sina recently reported that, based on a Financial Times analysis, no Chinese rating agency recognizes the credit risks that Chinese domestic corporate debts have caused. According to data that the IMF has published, China has around US$1.3 trillion worth of corporate debt that can turn bad. However, when checking with the top 10 Chinese rating agencies, the Chinese companies were all considered “healthy.” Based on the current ratings, nearly all of the US$2 trillion domestic corporate debt is considered safe. However, in the first six months of this year, the number of corporate debt default cases skyrocketed to three times the number for the entire previous year. The Chinese ratings are also dramatically different from ratings that the well-respected international agencies such as Standard and Poor’s, Moody’s, and Fitch have given. Some of the Chinese AAA-rated corporate bonds were rated “garbage” outside of China. Critics suggested that the Chinese rating agencies are under the pressure from both the government and the large domestic companies. Some Chinese government officials explained that the overseas ratings did not “properly” consider the government support those Chinese companies enjoy.
Source: Sina, July 1, 2016