How China’s "distorted" ratings hold back foreign investors

With corporate defaults likely to rise further, developing a reliable credit rating system could be key to drawing more participation from global investors.

The lack of reliable credit ratings is holding back overseas investment in Chinese onshore corporate bonds and all the more so at a time when defaults in China are rising, an industry conference in Hong Kong heard on Tuesday.

Because local rating methods are not sufficiently rigorous and don’t fully reflect the underlying credit risks, global investors still own just 2% of the world’s third-largest bond market, delegates were told.

“Among China’s outstanding corporate bonds, 40% are not rated and the remaining 60% are rated BBB or above,” Ying Wang, Fitch’s head of China Research Initiative, said at the RMB Fixed Income Currency Conference organised...

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