China’s Scandal-Hit Credit Ratings Industry Seeks a New Beginning (AI Translation)

【周刊提前读】评级业泡沫泛滥 投资者付费模式再试水

China’s credit rating industry is revisiting the “investor paid” model, after more than a decade since earlier attempts by institutions such as China Bond Rating (中债资信). Recently, users of China Chengxin International (中诚信国际) and United Credit Ratings (联合资信) were asked to register platform accounts, signaling a shift as full reports, currently free, may become subscription-based in the future, with detailed reports available only to paid subscribers[para. 1][para. 2]. This shift aims to encourage investors to pay for high-quality, detailed reports—improving report quality and reducing excessive competition, most notably the prevalent “issuer paid” model which can compromise rating independence[para. 3].

The proposed new system would introduce layered disclosure: a simplified “one-page” report, actually two to three pages summarizing key points and risks, would be public, while full reports providing comprehensive macroeconomic, industry, governance, financial, and risk analysis would require payment[para. 4][para. 5]. This model is currently being explored mainly by leading agencies as a self-directed initiative, potentially launching in August 2025, though pricing mechanisms are still being discussed[para. 6].

China's credit rating industry has long been criticized for low differentiation and inflated ratings, with over 90% of issuers rated AA or above, unlike the more normal distribution in mature Western markets[para. 8]. This overreliance on issuer-paid ratings is widely regarded as the core issue, leading to conflicts of interest and undermining ratings’ value[para. 11]. The industry’s attempts to reform include not only stricter regulation but also a 2021 five-agency notification that eliminated mandatory ratings requirements for many bond products, aiming to curb issuer-driven inflation [para. 12][para. 13].

Despite international parallels—global giants like S&P, Fitch, and Moody’s also primarily use issuer-paid models—the U.S. and Europe developed reputational incentives for rating agencies over a longer period, supported by initial investor-paid phases and a wider dispersion of ratings[para. 21]. Standard & Poor’s local China operations indicate much broader rating differentiation, with only 44% in the AA range and a significant portion rated BBB or below[para. 22].

While 48 rating agencies now operate nationwide, with the top agencies handling about 60% of business, most still rely on issuers for payment. Earlier efforts to establish a pure investor-paid model, such as with China Bond Rating and four securities rating entities, failed due to lack of demand and entrenched habits[para. 27-30]. Many institutional investors see ratings reports as valuable—albeit more for aggregated risk information than for the ratings themselves—indicating a potential but limited willingness to pay for detailed analysis[para. 39][para. 40].

There are challenges, notably “free-rider” issues where reports may be shared informally among market participants, and persisting conflicts even with investor-paid models, since investor interests may diverge (seeking lower ratings pre-purchase for higher yields, and higher ratings for better collateralization)[para. 43-45].

Globally, major agencies have diversified income streams: S&P reported in 2024 that 52% of its revenue now comes from non-rating analytics and subscriptions[para. 56]. Domestically, firms like YY Ratings have entered the market, offering alternative, more granular credit assessments, signaling unmet market demand[para. 63]. Yet the investor-paid model is far from the norm—most Chinese institutions remain accustomed to free access and issuer payment[para. 65].

Potential risks remain: with a “dual track” of ratings—one for issuers, one for investors—consistency and trust may be compromised[para. 67]. Ultimately, only raising the intrinsic quality and independence of ratings is seen as key to regaining trust and value for the credit rating sector in China[para. 68][para. 70]. Efforts to develop high-value investor services and data products, and to regulate information disclosure and pricing, will be essential for the next stage of the industry’s evolution[para. 76].