For foreign credit ratings agencies, China is still an emerging prospect. Despite a growing acceptance of the need for financial transparency, overseas players are still on the sidelines of the domestic debt market.
Unable to extend their China coverage beyond bonds issued overseas, they have become more reliant on advisory work and data services. “These other things are just there to pay the bills,” said Joseph Hu, China country head for Standard & Poor’s. “Credit ratings is why we are in China.”
In some cases, ratings agencies have sought to gain a toehold in the market through joint ventures with local operators. Last year, Moody’s took a 49% stake in China Cheng Xin International (CCXI) while Tokyo-listed financial information provider Xinhua Finance set up a joint venture with Shanghai Far East Credit Rating in 2002.
However, history shows that these arrangements haven’t always worked. A partnership between Moody’s and Dagong Global Credit Rating failed to get off the ground in the early 2000s, while a joint investment in CCXI by Fitch and the International Finance Corporation (IFC) ended in 2004.
“They never really understood each other,” one industry insider said of the Fitch-IFC-CCXI arrangement. “They were thinking about joint development of the credit ratings market but it just wasn’t the right time.”