China should pay greater attention to the development of its credit rating industry in the process of establishing a market-oriented economy, experts have said.
"The credit rating business grows with the socialization of financial control and securitization of financial means, which the Chinese economic authorities are intending to do in coming years," said Bernard de Lattre, a senior official with Fitch, the world's third largest rating agency.
As a professional service which unveils the risk in capital markets and serves the investing public, the credit rating business has become a major tool of supervision, said Lattre, group managing director of Fitch, who is responsible for business in Asian countries.
However, China's credit rating business is still in its initial stage, according to Wing Wu, chief executive officer of China Chenxin International Credit Rating Co Ltd, the largest credit rating agency in China.
Rating agencies in China are not completely independent. "Many problems appeared 10 years ago, when China began to develop the industry and these problems still exist to some extent and some problems have become even worse," Wu said.
The rating criteria system is not standardized, the business scope is narrow, the law is outdated, the information is not available and the results of credit ratings are not fully used, he said.
False figures from clients also threaten the objectivity of the credit ratings due to slack management.
The industry needs support from the government, because the whole credit system is a systematic work, Wu and Lattre agreed.
The government should stipulate an "entrance qualification," Lattre said.
In developed countries such as the United States, over-intervention in the rating industry is not advocated. But the situation in China is different because China's reform is being carried out under the leadership of the government, he said.
"Applying rating results of approved agencies to capital market management is an important way to promote the rating industry," he said.
The "exit rule" is also an inseparable factor for the development of the rating industry.
As China will soon access the World Trade Organization (WTO), Chinese rating agencies should take the opportunity and participate in international competition in order to improve themselves, Lattre and Wu agreed.
"China's financial sector will open up to international society step by step after the WTO accession," Wu said.
Only if Chinese rating agencies really experience international competition can they find a foothold in the international capital market, he said.
On the other hand, Chinese rating agencies need to increase communication and cooperation on standardizing industry practice, perfecting rating techniques, improving credit rating standards and strengthening self-discipline.
(China Daily November 3, 2001)