It's all investment grade in China

The mainland’s ratings agencies do not differentiate – 96 per cent of domestic ratings are AA or above.

According to the three dominant domestic agencies – Chengxin, Lianhe and Dagong, which collectively control 80 per cent of the domestic market – all mainland credits exist in a tight, four-notch cluster veering between “extremely strong” creditworthiness and the merely “very strong” (to use Chengxin’s language describing AAA and AA ratings).

“Credit differentiation is lacking in China from a rating perspective. If you look at the breakdown of the domestic market, the vast majority of debt is double A or above – forget about single A – all your companies are squeezed into a few notches,” said a regional head of credit research at a large bank.

This is a problem for offshore funds that are entering China’s domestic debt market, thanks to the opening up of the RQFII (renminbi qualified foreign institutional investor) scheme. There has been 167.8 billion yuan (HK$214 billion) of quota allocated to 57 institutions since the scheme’s launch in 2012, and a new fund dedicated to domestic mainland debt to be launched in Hong Kong each month.

RQFII just scratches the surface. China’s bond market is growing rapidly. It has grown from a very low base in the past decade to become the world’s fourth-largest, with more than US$4 trillion outstanding in the domestic market alone. It is projected to eclipse the US market by next year. 

However, the agencies rating this huge volume of issuance that alert investors to what is investment grade and what is not, provide a unified view of this market – everything is supremely investment grade.