Regulating the Chinese credit rating agencies: progress and challenges

Author:Jing Bian
Position:SOAS, Univeristy of London, London, UK
Pages:66-80
SUMMARY

Purpose - The purpose of this paper is to examine the emerging Chinese credit rating agencies (CRAs), and their development, regulatory regime and challenges. The Chinese financial system has made many improvements; in particular, the regulatory regime has reached a more effective level. However, it should be admitted that some aspects still require further development.... (see full summary)

 
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Regulating the Chinese credit
rating agencies: progress and
challenges
Jing Bian
SOAS, Univeristy of London, London, UK
Abstract
Purpose – The purpose of this paper is to examine the emerging Chinese credit rating agencies
(CRAs), and their development, regulatory regime and challenges. The Chinese nancial system has
made many improvements; in particular, the regulatory regime has reached a more effective level.
However, it should be admitted that some aspects still require further development. Compared with
other developed markets, the Chinese credit rating industry is still young. Under these circumstances,
questions are raised about the performance of the CRAs in China. Whether the legal framework is
effective enough? A further point, in terms of the development, is what are the major obstacles lying
ahead for the Chinese CRAs?
Design/methodology/approach This paper will concentrate on the study of Chinese CRAs.
Starting with a brief introduction and analysis on the Chinese CRAs, it will further examine the rating
methodologies of the Chinese CRAs. Following this, the regulatory regimes will be analyzed in detail,
from the perspectives of the securities, banking and insurance market. Moreover, the paper will identify
the key problems under the current regulatory regime. Last but not least, a conclusion and some future
suggestions for the development of the regulatory regime will also be made based on the earlier
observations and study.
Findings – The current development stage and future reform requirement of the Chinese credit rating
industry.
Originality/value – Provide a full dimension and in depth analysis on the Chinese credit rating
industry.
Keywords Credit rating, Bank rating, Chinese nancial system, Insurance rating, Securities rating
Paper type Research paper
1. Introduction
After the recent nancial crisis, an enhanced regulatory regime for credit rating
agencies (hereafter the CRAs) has been introduced in major jurisdictions. This is based
on the unique role played by the CRAs in the nancial market. On the dark side, globally
accepted, the CRAs bear certain responsibility for the recent nancial crisis. On the other
hand, based on analyzing and evaluating the information of issuers or borrowers, the
CRAs will issue the credit rating reports. Through these reports, the creditworthiness of
issuers and their bonds or other types of nancial instruments is easier to assess.
Therefore, they can mitigate the information asymmetry problem in nancial markets
by “piecing the fog of asymmetric information that surrounds lending relationships”
and “helping borrowers emerge from that same fog” (Lawrence, 2001).
Focusing on China, the Chinese nancial system has made many improvements; in
particular, the regulatory regime has reached a more effective level. However, it should
be admitted that some aspects still require further improvement. Compared with other
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
JMLC
18,1
66
Journalof Money Laundering
Control
Vol.18 No. 1, 2015
pp.66-80
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-07-2014-0022

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