Study Of China's Credit Bond Rating

As one of the major ways of direct financing in china, the role of bond market in financial market is becoming more and more important. As an indispensable part of bond market, credit bond market, the credit bond market of China has undergoing a rapid growth in the past two decades. It has become much bigger in total issued amount and proportion. Because of the information asymmetry that exists between the bond issuers and bond investors, the bond market arise reverse selection problem, and the investors may face moral hazard of issuers. To correctly pricing the credit bonds, investors have to correctly judge the credit risk of those instruments. This gives birth to the popular bond rating agency we see now.After the development of those years, China's credit rating industry is becoming more and more proper. There are now five rating agencies that are permitted by regulator. By cooperate with world famous agency, they has basically gasped the most advanced rating technical in the world.Credit rating is one of the key factors that influences credit bond yield. Generally credit bond rating can be divided into issuer rating and bond rating. According to the analysis of the effect of bond rating on bond yield, I discovered that both kind of rating has great effect, but yield difference could not been solely explained by bond rating. The difference between issuer rating and bond rating is mainly caused by credit rating enhancement methods adopted by issuers. In our country, the most popular methods used by issuers are third party guarantee and assets mortgage. But there still are some problems with those methods, for example, parent and subsidiary company mutual guarantee and the appraised assets value is too high to be true, which undermine the effect of guarantee.Our country's bond credit rating industry still exist some unreasonable phenomena and problems, for example, China's administrative overprotect its enterprises makes no bond default until now, so we cannot use default rate to test the accuracy of bond rating, Over competition leads to the unethical behavior of rating buying, separate regulation bring to the overlap of rating agency. In future, the trend is the unity of the regulator and the enhancement the self-regulation of the rating agency the perfection of relative laws, avoiding the potential conflict of interest in the process of credit rating.After 2008, the independence and impartiality of external rating agency is seriously challenged. Most of the countries in the world beginning require their investment institutions to build internal rating system. This seems to be a trend in future.