Core Viewpoint - Establishing a globally comparable RMB rating system with Chinese characteristics is crucial for overcoming the current bottlenecks in China's rating industry [1] Group 1: Regulatory Actions - On September 30, S&P's wholly-owned subsidiary in China, S&P Global Ratings (China) Co., Ltd., received a warning letter from the Beijing Securities Regulatory Bureau for failing to adhere to consistency principles and proper information disclosure during its securities rating business [1] - Other rating agencies, such as Dongfang Jincheng International Credit Rating Co., Ltd. and United Ratings Co., Ltd., have also faced penalties for similar violations since August [1][2] - The penalties highlight a trend where rating agencies struggle with maintaining independence and credibility due to a predominant issuer-paid model, leading to inflated ratings [3] Group 2: Consistency Principle - The consistency principle requires that ratings for the same type of objects or the same rated entity should use consistent standards and procedures, ensuring a true, objective, and fair representation of credit quality [3] - There are three dimensions to the consistency principle: vertical stability over time, horizontal comparability across entities, and transparency and repeatability of the rating process [3] - The current issuer-paid model in China has led to a lack of differentiation in ratings, with over 90% of bonds rated AA or above, contrasting sharply with the normal distribution seen in mature markets [3] Group 3: Industry Evolution - In August 2021, the People's Bank of China and other departments issued a notice encouraging credit rating agencies to explore investor-paid ratings and disclose results, aiming to improve the industry's health [4] - Since 2020, leading rating agencies have been piloting innovative rating systems to enhance industry development and align with international standards [4] - In March 2023, United Ratings launched a high-differentiation "3C rating system" for investors, while China Chengxin Credit Rating Group introduced a "QE rating system" based on default probability measurement in May 2024 [4] Group 4: Responses to Penalties - S&P Global Ratings has received two regulatory penalties since entering the Chinese market in 2018, both related to consistency principle violations, with ratings often exceeding market averages [6] - United Ratings faced penalties for using different rating standards for the same entity under its 3C rating and issuer-commissioned ratings, violating the consistency principle [6] - A representative from United Ratings clarified that the inconsistency arose from internal conflicts between new and existing business lines, rather than intentional dual standards [7] Group 5: Future Directions - The Chinese rating industry aims to establish a self-developed, market-tested, high-differentiation global RMB rating system, moving away from reliance on international methodologies [8] - The initial concept of a new rating system was to maintain a low central rating to avoid market shocks, leading to a gradual dual-track approach [8] - The development of new rating systems targeting investors is a common trend among rating agencies, indicating that the industry is in an exploratory phase regarding direction, pathways, and regulatory boundaries [8]