The Changing Credit Rating Standards In China

China’s bond market experienced rapid growth since2006and the credit bondmarket exploded recent years. But China’s bond rating market is facing manyproblems one of which is the changing standards due to fierce competition. In recentyears, the number of upgrades in bond issuers has exceeded the number ofdowngrades, leading us to suspect that rating agencies are now using looser standardsin assigning ratings.To verify my hypothesis, we use an ordered probit rating model to find whatrating agencies value most in assigning ratings. To specify a model that fits well intoChina market, we also do marginal effect analysis to validate our assumptionregarding the effect of independent variables on the ratings. And then we add yeardummies to see if there is a trend of loosening standards. General regression modeland separate regression of different rating agencies are run to find the trend and thedifference among agencies. The pooled regression shows that there is a trend ofchanging standards from2008to2011and separate regression shows Dagong andCheng Xin are the main agencies that cause this trend. The marginal effect analysisfinds out that the major effect lies in the change of the probability that a company canbe rated AA+. Besides, even though different agencies have much in common, eachof them also has his own emphasis which may be useful information for issuers andinvestors. The result of economic importance examination is in line with ourregression.