The internationalization of China's credit-rating agencies is still in its infancy. It's true that some of these agencies have launched operations in overseas markets including Hong Kong and Europe, but their share of these markets remains fairly small and they have very limited, if any, market clout. Domestic credit-rating agencies have a tough road ahead to compete with established international players.
In light of the industry heavyweights' proven track record in expanding internationally and the realities of China's credit-rating sector, the country's indigenous credit-rating agencies should gain a footprint in the yuan-denominated bond market and gradually explore the world beyond their home turf.
Initially, they should start operations in Hong Kong, the most important market for offshore yuan-denominated bonds. The rollout of the Bond Connect linking the Chinese mainland and Hong Kong enables mutual market access. If domestic credit-rating agencies fail to satisfy investors' needs in this market, their international counterparts will start to eat into China's credit-rating market, thus intensifying competition in onshore bond ratings.
Also, domestic credit-rating agencies can set up offices in countries and regions along the Belt and Road (B&R) route and do some preparatory work such as conducting market research, gathering data and establishing contact with potential clients.
Take Singapore as an example. The city-state is a major offshore trading center for the yuan and its credit-rating sector is highly open to foreign investment. It is advisable that Chinese credit-rating agencies open offices or branches first in Singapore where the credit-rating business for offshore yuan-denominated bonds is expected to grow. Singapore is also part of the B&R initiative, so it's important for domestic raters to pursue local participation.
Furthermore, China's rating agencies can pursue technological and strategic cooperation with other small and medium-sized international peers such as Canada's DBRS, Japan's JCR and Mexico's HR Ratings, to reach out to global investors and issuers with an interest in yuan-denominated bonds. (Source: Global Times)
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