Assessing credit risk in Greater China

Ping Chew, Standard & Poor’s managing director and head of Greater China, explains why S&P is launching the Greater China credit rating scale and what benefits investors can expect.

Assessing credit risk in Greater China
Development of the offshore renminbi debt market was the main impetus behind S&P’s new rating scale (AFP)

Standard & Poor’s recently launched a Greater China credit rating scale, giving market participants access to a transparent and independent opinion of relative credit risk within a Greater China context. The new scale applies to the fast-growing offshore renminbi-denominated fixed-income market.

What is a Standard & Poor’s Greater China credit rating?
A Standard & Poor’s Greater China scale issuer credit rating is a forward-looking opinion about the overall creditworthiness of a debt issuer, guarantor, insurer or other provider of credit enhancement (obligor) to meet its financial obligations as they come due, relative to other Greater China obligors. Our Greater China scale ratings are based on the same processes and criteria as those underlying Standard & Poor’s global rating scale. The scale is calibrated in such a way as to anchor the sovereign credit rating on China at the highest level of the scale (cnAAA) to provide more granularity of relative credit risk within a Greater China context.

What prompted the creation of the Greater China credit rating scale?
The rapid development of the offshore renminbi debt market was the main impetus behind the development of the Standard & Poor’s Greater China credit rating scale. And with the accelerating usage of the renminbi as a settlement currency, commensurate with China’s status as the world’s second-largest trading nation, the growing pool of offshore renminbi deposits is likely to continue to feed the development of the offshore renminbi debt market over the long term.

What sort of users will benefit from the introduction of the Standard & Poor’s Greater China credit rating scale?
Our Greater China rating scale responds to the needs of investors and other credit risk management professionals who focus on Greater China as an asset class in and of itself, and who are looking for a credible benchmark against which to form their own independent opinion of relative credit strength within their investable universe. We expect that primary users are likely to be pan-Greater China-based investors--that is investors based in Greater China and interested in investing in the fast-developing offshore renminbi market. The Greater China rating scale will also benefit global investors who are interested in participating in, or increasing their exposure to, the Greater China debt capital markets, particularly the fast-growing offshore renminbi fixed income market, by providing them with a credit assessment measure that is map-able to Standard & Poor’s global scale.

Who and what will Greater China scale ratings be assigned to?
We plan to assign issuer credit ratings to all Greater China-domiciled obligors, and to assign issue credit ratings to their debt instruments, as well as to all Hong Kong dollar-denominated, and, most importantly, to offshore renminbi-denominated debt instruments, whatever the domicile of the obligor. Our issue credit ratings can be with respect to a specific debt, straight or convertible bonds, syndicated bank loans or other debt financial instruments. We may also assign short-term Greater China scale ratings to the short-term debt instruments of rated Greater China-domiciled issuers, and to the Greater China-denominated currency (offshore renminbi and Hong Kong dollar) short-term debt instruments of global issuers.

How will a Greater China scale rating appear and what are the chief characteristics of the scale?
The Greater China scale ratings will feature the identifying prefix ‘cn’, and include both long- and short-term ratings. The highest long-term rating is cnAAA and the highest short-term rating is cnA-1+. We ensure that the Greater China scale is transparently mapped to Standard & Poor’s global credit rating scale through publicly available correlation parameters. Our Greater China scale ratings also have their own respective rating definitions, which can be found on our website at

Why are Greater China scale ratings being assigned automatically to all Greater China-domiciled issuers and issuers of offshore renminbi and Hong Kong dollar debt?
Our objective at this stage is to help provide greater transparency on relative credit risk within the emerging offshore renminbi debt market. The market is still relatively small, and constrained by a lack of secondary trading. Standard & Poor’s believes that establishing an independent, rigorous and robust credit risk benchmark system, which is specifically tailored to the needs of this market, should contribute to its healthy development. We are also hopeful that this Greater China scale will help support the efficient mobilisation of the growing pool of offshore-generated renminbi through renminbi cross-border trade settlement, and in particular with the development of the offshore renminbi debt market.

How does Standard & Poor’s treat country risk on the Greater China credit rating scale?
As on our global scale, country risk considerations are a standard part of Standard & Poor’s analysis for credit ratings on any issuer or issue on our Greater China credit rating scale. Currency of repayment is a key factor in this analysis. An obligor’s capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the risk that the sovereign government may restrict non-sovereign access to foreign exchange needed for debt service. These country risk considerations are incorporated in the debt ratings assigned to specific issues.

Will the Greater China credit rating scale be based on different standards than those underlying Standard & Poor’s global scale?
No, the rating criteria, methodology and processes we use to assign Greater China credit ratings will be identical to those associated with Standard and Poor’s global scale. Importantly, we have made the mapping between Standard & Poor’s Greater China and global scales publicly available. In our view, this underscores the credibility and transparency of the Greater China scale, while helping global institutional investors with risk management as it allows them to navigate seamlessly from the Greater China scale to our global rating scale.

What’s the difference between national, regional, and global credit scale ratings?
The essential difference is one of scope: regional scale ratings are based primarily on credit risk comparisons within a specific region, while global scale ratings are based on global comparisons and national scale ratings are based on comparisons within a domestic context. National scales essentially respond to the well-documented home-market bias of investors and their desire for relative credit risk benchmarks that make full use of the entire rating spectrum. Regional credit rating scales are also meant to respond to a home market bias, but these markets are often still in a stage of early development. In that sense, we believe that regional credit rating scales can facilitate the development of regional debt capital markets, and their integration into global markets, by establishing a common standard of comparison of relative credit risk within a particular region.


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