S&P Global Ratings has raised concerns over the concentration of top-tier credit ratings in China's bond market, warning of systemic risks amid regulatory efforts to reduce disparities with global standards.
Christopher Lee, Asia-Pacific regional practice leader at S&P, highlighted discrepancies where foreign issuers rated 'B' globally receive 'AAA' ratings when selling panda bonds in China. The five-year cumulative default rate for a global 'B' rating stands at 15.34%, underscoring the potential misalignment in risk assessment.
China's credit bond market, valued at 37 trillion yuan (US$5.5 trillion), includes over 6,500 issuers, with nearly 90% holding ratings of 'AA' or higher. In contrast, only 4.4% of U.S. issuers receive such high ratings, according to Caitong Securities. The concentration of top-tier ratings has drawn attention from Chinese regulators, who have engaged in closed-door meetings since April to urge rating agencies to reduce 'AAA' rating concentrations.
Several downgrades and rating withdrawals have followed the regulatory push, signaling a shift toward greater differentiation in credit risk assessment. The reforms aim to align local practices with international standards as China seeks to attract foreign issuers and investors to its expanding bond market.
