New Chinese Semi-Official Rating Agency

March 14, 2011 by · Leave a Comment
Filed under: The Rating Agencies, The Ratings System 

Chinese officials have been candid in expressing their opinion that the three major rating agencies, Standard & Poor’s, Moody’s and Fitch all had conflicts of interest that led them to assign top ratings to securities that later turned out to be junk.

To work around these agencies, China is establishing the China Credit Rating Company (CCRC) that will charge investors instead of issuers to assess investment risk.

It is intended that the CCRC be a not-for-profit organization, which will be funded by the National Association of Financial Market Institutional Investors (NAFMII), a trade group within the People’s Bank of China, China’s central bank.

Because the agency will be circumventing what they believe to be a fundamental conflict of interest that has plagued leading Western agencies, the Chinese believe the CCRC will have more credibility.

Liu Shiyu, a vice governor with China’s central bank, stressed the value of independent risk assessments. “The new firm is a tentative effort on this road,” Liu said. “But we also need to be aware that it will be a very difficult task to reform the ratings industry.”

The charging model for this new rating agency is still to be determined.

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