[Biweekly Symposium] No.322, The Rise of Chinas Credit-rating Industry
Author:Unirule
Time：2006-11-10 14:12:51 Clicks:
Topic:The Rise of China's Credit-rating Industry Lecturer:Professor Scott Kennedy, Indiana University Discussants:Prof. Wu Jingmei, University of International Business and Economics;Prof. Capital University of Economics and Busienss;Prof. Zeng Gang, Peking University;Dr. Zhang Zhang, Director of Risk Management Department, Bank of China
Professor Scott Kenney first introduced the background of his research and then came up with the current situation of China’s credit-rating industry: in China, this industry has minute influence on the behavior of security issuers and investors, the opposite of the situation in United States. He further raised the question “what is the origin of credit-rating industry’s power” and explained his viewpoints on this issue. From the perspectives of credit-rating companies, there power comes from good reputation. If their rating reflects the real case in a relatively correct way, investors will trust them and their reputation will be built. However, some scholars say that the power of credit-rating industry comes from government’s supports, which to some extent trigger the monopoly of this industry. Mr. Scott did not agree with the former point of view. First, many economists’ researches revealed that credit-rating companies did not provide any new information for investors. Second, although the credit of a certain company has an obvious correlation with the rating of that company, it does not mean that the rating itself is accurate because credit rating may affect the possibility to break a contract. Then he described the differences between China’s credit rating industry and that in US. In China, the main business of credit rating companies is to rate corporate bonds. Although corporate bonds are important for economic developments in Japan, US and some other European countries, few companies in China issue corporate bonds. This is related to government’s policy. National Development and Reform Commission only allows the biggest and most effective state-owned enterprises to issue corporate bonds. This is a reason behind the small scale of China’s credit-rating industry. Besides, interest of these bonds is designed by the central bank and it has some effects on China’s credit-rating companies. For one thing, they have a relatively small income from rating because their rating will have little influence on bonds’ interest. For another thing, because there are few companies issuing corporate bonds, credit-rating companies are more inclined to flatter the issuers and this may trigger “rating inflation”, affecting the reputation of China’s credit-rating companies. Finally, Mr. Scott said: “although the situation is quite different from that several years ago, there are still many problems. First, famous foreign credit-rating companies such as Moodys and S&P could not operate independently in China. Second, investors are skeptical about the accuracy of these companies’ rating, more or less eroding the credibility of this industry. Third, the survival of China’s credit rating industry is related to government’s supports, which has a negative effect on credit rating companies’ principle of independence.”
