Penalty for S&P Ratings China in line with Chinese regulations, opening-up drive: experts
Published: Feb 03, 2024 08:14 PM
China's central bank Photo: VCG

China's central bank Photo: VCG

China's central bank has penalized six credit ratings firms, including the China unit of US-based S&P Global Ratings, for failing to follow legal procedures and rules, in what analysts said was a strong signal that Chinese regulators are stepping up efforts to regulate the credit ratings sector, which is crucial for the performance of businesses and the economy. 

While foreign media outlets have been seizing on normal Chinese regulatory actions against foreign firms to smear China's business environment, analysts said that the move by the People's Bank of China (PBC) was in line with Chinese laws and regulations and was not specifically targeting a foreign firm, and that China has moved swiftly to further open up its market for foreign businesses.

In a notice on Friday, the PBC issued warnings and fines totaling about 34.47 million yuan ($4.79 million) to six credit ratings firms, including S&P Global (China) Ratings, for violating rules. S&P Global (China) Ratings was fined 2.12 million yuan for three types of violations - failure to conduct its credit rating business in accordance with statutory procedures and business rules, failure to submit reports to the credit rating industry authorities or their dispatched agencies as required, and violation of the principle of consistency. A former executive of the firm was also fined 30,000 yuan. 

All the other five credit ratings firms fined were Chinese ones, including Far East China Credit, China Lianhe Credit Rating Co and CSCI Pengyuan Credit Rating. They all received bigger fines than S&P Global (China) of between 3.9 million yuan and 7.69 million yuan, according to the PBC notice. 

Analysts said that the PBC move signals that Chinese regulators are stepping up efforts to regulate the credit ratings sector, where there are many problematic practices that have a huge negative impact on Chinese businesses and the economy. 

"If credit ratings are not objective, then they would be misinformation and untrue content, which would greatly affect and undermine the credit standings of businesses," Li Yong, a senior research fellow at the China Association of International Trade, told the Global Times on Saturday, "that is a very important issue because it directly affects the performance of businesses." 

Li said that credit ratings must be based on scientific and objective analysis and its methodology must be fair, and if these principles are violated, credit ratings could cause great disruptions to businesses and markets.

The penalty for S&P Global (China) was singled out in some overseas media reports, as it comes as Western media outlets are smearing China's legal and regulatory actions against certain behaviors of foreign businesses. Analysts said that such normal regulatory moves should not be distorted. 

The penalty on the China unit of S&P Ratings is in accordance with the law and is a manifestation of law-based regulation, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Friday.

Li also said that China has been continuously opening up its market, including the financial sector, to foreign businesses, and many global financial institutions have actually entered or expanded in the Chinese market recently. 

"However, open access does not mean that foreign businesses will receive special treatment or that they can violate Chinese laws and regulations without being penalized," Li said, noting that China is treating foreign businesses in line with laws and regulations, while the US is treating Chinese firms based on geopolitics and ideological prejudice.