A Voice from the Middle Kingdom
For their part, China's credit ratings agencies face many challenges as well. Like their larger American counterparts, they too are paid by the companies they rate and therefore face similar incentive to fudge ratings upwards in order to attract their customers (one industry insider even reported it was common for two agencies to compete for a customer's business by offering favorable credit ratings). Although China has more than 100 agencies, roughly 60% of the industry is controlled by China's three largest firms and American firms hold significant stakes in several of China's largest agencies (Moody's, for example, owns a 49% stake in Zhong Chengxin International Credit Ratings Ltd, while Fitch owns a similar 49% share of China Lianhe Credit Rating Co, a competitor). And, perhaps the greatest challenge of all, nearly 40% of China's credit ratings agencies operating in the red, suggesting that the industry will likely undergo significant restructuring during the near future.
However, despite these challenges, China's agencies offer one potential benefit to the world's sovereign ratings regime – competition and alternate ratings standards. Dagong Global, for example, focuses on GDP growth and the ability of a nation's government to support that growth while Moody's and Fitch tend to place a higher emphasis on total GDP and levels of political democratization. And, while it is unclear whether these or other standards may be the wisest criteria for evaluation (even Tan Yaling, head of China's Foreign Exchange Research Center, admits that it "may not be appropriate to use Chinese standards to evaluate foreign market competition"), the alternate opinions provided by China's agencies may force the likes of Moody's or Standard and Poor's to be a little more diligent about ensuring the accuracy of their ratings, lest the trust of global markets begin to shift from themselves and to their fledgling Chinese competitors. And, with CIMB Group, Malaysia's second largest financial services provider, placing an order with Dagong Global this March for its largest credit rating to date, that shift may already be beginning.
[1] http://business.financialpost.com/2011/07/28/chinas-dagong-set-for-another-u-s-downgrade/
[2] ibid
[3] http://www.rte.ie/news/2011/0708/ratings-business.html
