Rating firms under fire

Watchdog says it will not tolerate illegal activities

The Chinese securities watchdog said on Friday that it will step up its crackdown on illegal activities by the country's credit-rating agencies amid a surge in corporate bond sales.

The China Securities Regulatory Commission has taken action and issued warnings to six agencies including Dagong Global Credit Rating Co and China Chengxin International Credit Rating Co Ltd, a spokesman said.

Deng Ge told a news conference that the CSRC has identified irregularities including inconsistent rating standards and processes, incompatible rating methods and models with the publicly disclosed information, and a failure to carry out due diligence.

"The regulator is paying careful attention to the integrity of the rating agencies and their employees. It will take tough action against financial fraud and irresponsibility and will hold the senior executives accountable," Deng said.

China's corporate bond market has seen rapid growth, with nonfinancial companies raising a total of 962.4 billion yuan ($149 billion) through stock-exchange listed bonds last year. The value was up by more than 500 percent from the previous year, according to official data.

Meanwhile, the regulator said that it has completed the inspection of 105 companies that were first-time bond issuers. Irregularities identified included fund mismanagement, incomplete information disclosure as well as insufficient corporate governance and internal risk management.

In a separate statement, also on Friday, the regulator said that it has approved the establishment of the first joint-venture securities firm between the mainland and Hong Kong with full licenses in the Shanghai Free Trade Zone. The firm has a registered capital of 3.9 billion yuan.

Joint-venture securities brokerages previously had limited operation on Chinese mainland. For instance, they were not granted the license to do securities underwriting business in the mainland market.

On Friday, Chinese stocks posted the strongest gain since November. The Shanghai Composite Index gained 5.15 percent this week to close at 2955.15.

Investors' sentiment was boosted by the US Federal Reserve's decision to keep interest rates unchanged, the stabilized yuan and the possible delay of the registration-based new share sale reform, analysts said.