China's Central Bank Pressures Rating Agencies to Cut Top Corporate Bond Ratings
Alina Collins
The PBOC ordered credit-rating agencies in April to review triple-A ratings, targeting bonds whose coupons far exceed benchmark yields; over 90% of newly rated bonds carry triple-A, and regulators are now forcing a correction.
What exactly did the PBOC order?
The People's Bank of China told domestic credit-rating agencies in April to review high credit ratings, focusing on bonds whose coupons sit well above government-bond yields of the same maturity.
This means → if a bond is rated triple-A (the safest) but pays far more than a government bond, the market plainly doubts that rating — the PBOC now wants agencies to explain the gap.
Three people familiar with the matter say on-site inspections began in May.
How inflated have triple-A ratings become?
A Financial Times analysis last August found that over 90% of newly rated Chinese bonds carried triple-A, up from under 50% in 2016.
In plain terms = nearly every issuer got the "top of class" label, so the rating stopped distinguishing strong credits from weak ones.
Deng Kaihua (邓凯华), associate professor at Renmin University, said regulators recognised the problem two years ago; agencies have been taking concrete steps over the past three months to shrink the triple-A share.
How is the review being conducted?
Inspectors first targeted bonds whose coupon exceeds the benchmark yield by more than 2 percentage points — the widest spreads, and the most likely cases of inflated ratings.
In June the PBOC widened the scope to bonds with spreads of 1 to 2 percentage points, requiring case-by-case re-examination.
The review also covers compliance issues, including whether agencies traded higher ratings for client business.
Which agencies have already acted?
China Lianhe Credit Rating (联合信用评级), the country's largest agency, revoked triple-A ratings for Xi'an Qujiang Cultural Finance Holdings and Tianjin Financial Investment Services — both had coupons well above the benchmark.
China Chengxin International (中诚信国际) briefly posted a notice on its website that it would suspend some bond ratings for over three months, then deleted it and said the move was unrelated to the regulatory review.
This reflects a delicate position: agencies are complying but reluctant to publicly acknowledge the pressure.
What is the market worried about?
A credit official noted that yield spreads depend on more than issuer quality — duration, sector, liquidity, and prevailing risk events all play a role — yet regulators are using "a very blunt, one-size-fits-all approach."
Some market participants worry issuers may be pushed toward shorter-term bonds whose spreads more easily pass the threshold, raising refinancing risk instead.
In plain terms = to avoid being flagged, companies may only dare to borrow short, meaning they must roll over debt more often — concentrating risk rather than reducing it.
Can this crackdown fundamentally change the rating ecosystem?
Yao Yu (姚宇), founder of rating platform RatingDog (评级狗), said the triple-A share will remain "very high" even after flagged ratings are downgraded or withdrawn.
"You cannot slash triple-A numbers overnight with an administrative order," he said.
This means → administrative tools can squeeze out the most obvious inflation, but until the deeper incentive structure — who pays and who assigns the grade — changes, the root cause of triple-A proliferation remains intact.
Content is for reference only, not financial advice.