On November 29th, Chinese regulators released an interim version of a landmark policy aimed at updating the legal groundwork underpinning China’s nascent credit rating industry. The measures will go into effect December 26 this year.
- Defines which state bodies will regulate credit rating agencies (there are four: People’s Bank of China, Ministry of Finance, China Securities Regulatory Commission and the NDRC)
- Sets out the legal requirements for establishing a new credit rating agency or altering the structure of an existing agency
- Stipulates that agencies should strive for objectivity, transparency and (where appropriate) data privacy
- Sets out checks and balances for maintaining data quality and preventing ratings fraud
- Sets out legal liabilities and penalties for violating credit rating statutes
The policy is also a critical component in the ongoing opening-up of China’s financial markets, and includes measures allowing foreign rating agencies to freely compete with domestic counterparts.
Some context: In January this year, Standard & Poor’s was the first wholly foreign-owned (non-joint-venture) credit rating agency to enter China. Prior to 2019, only joint ventures were allowed.
The overlap between the financial credit rating industry and the social credit system is a little difficult to untangle, but basically, the interplay happens in two primary ways:
- There is a possibility that financial credit rating agencies will use the government’s corporate social credit data as a component of their ratings
- This policy (Article 7) also specifies that credit rating agencies themselves, and senior managers at those agencies, will be regulated through the corporate social credit system.
Get smart: China’s credit rating industry wants to compete internationally, but it’s got a long, long way to go before it’s ready for export.