China has granted Fitch Ratings’s wholly owned subsidiary in Beijing, Fitch (China) Bohua Credit Ratings, a license to rate bonds of domestic companies, according to a statement from China’s central bank.
“The license enables the firm to rate financial institutions (including banks, non-bank financial institutions and insurers) and their securities, and structured finance bonds in China’s interbank market,” according to a statement from the firm.
“Fitch Bohua was set up in July 2018 and it filed an application with the central bank and the National Association of Financial Market Institutional Investors in 2018 to rate financial institutions, and their securities, and structured finance bonds in China’s interbank market,” Danny Chen, CEO at Fitch’s operation in China, told FSA.
The ratings firm has two other offices, a wholly foreign-owned enterprise (WFOE) also in Beijing and a branch in Shanghai, both of which focus on offshore company ratings.
Another ratings firm, S&P, was granted an onshore license in 2019 and later that year the firm assigned a AAA credit rating to ICBC Financial Leasing, which signaled the first time a credit ratings agency’s WFOE rated an onshore bond.
The license that S&P was granted was type A, according to mainland publication, Securities Times.
The type A licence allows a rating agency to rate China’s onshore bonds across all asset classes.
However, Fitch obtained a type B licence, according to Chen, which allows the rating of bonds in specific asset classes that the agency applied for.
With the new license Fitch can only rate financial companies, which excludes a large swathe of domestic companies.
Another rival ratings agency, Moody’s, still does not have an onshore license.
“Moody’s has been steadily expanding our broader presence in China through the growth of our domestic ratings affiliate China Cheng Xin International Credit Rating, expansion of our cross-border ratings coverage, data and analytics offerings, and our recent minority investment in Syn Tao Green Finance,” a spokeswoman for Moody told FSA.
In fact, China has domestic ratings firms, but they have been criticised for being too generous with their ratings.
Moreover, according to a previous report in Caixin, S&P and Fitch have plans to adopt new rating methods and standards tailored for the Chinese market, which raises concerns about their onshore methodologies.
“Fitch Bohua uses a rating scale from AAA to C, RD and D, based on an ordinal ranking of creditworthiness within the relevant Chinese markets. This is similar to the rating scales used by Fitch Ratings’ affiliates Korea Ratings and India Ratings,” Chen said.