China credit rating agency in Europe

Italy's second largest city is to be home to the first European office of Dagong, the Chinese credit rating agency,which check chinese company credit. It is expected that the company's Milan office could get official approval to begin operations as early as next month (June). It is currently waiting on final authorisation from the European Securities and Markets Authority (ESMA), the EU financial regulatory body.

Once operational, the Milan office will employ more than 40 analysts as a joint venture between Dagong Global and Mandarin Capital Partners, a Sino-Italian private equity fund. It will undertake rating activities for banks and corporate entities, while any sovereign state rating activity will be conducted by the company's head office in Beijing.

It is believed this Europe-based rival to Standard & Poor's, Moody's and Fitch Group (the three ratings agencies that together share 95% of the global market) is intended to boost Chinese investments in Europe by providing Mainland companies with clear indications of the value and rating of local industry prospects.

It is a timely launch, given that Chinese investors are currently switching away from sovereign state bond investments and considering the acquisition of both brands and local industries. A rating by a China-based agency could be a useful guide for Chinese investors looking to evaluate opportunities in the European market.

Milan decision surprises industry observers

The selection of Italy as Dagong's first European operation – with more apparently planned in the coming years – has caused raised eyebrows among the EU business community. Despite retaining something of an industrial base, the country is not seen as one of the main European hubs for financial services.

The Italian press has carried some concerns that the arrival of this Chinese newcomer reflects expectations that a number of local businesses, weakened by the prevailing European financial conditions, could be ripe to be acquired at knockdown rates. Some have even suggested the agency could be instrumental in artificially lowering the value of companies in order for purchasers to secure a better deal. Others, however, maintain that the arrival of a Chinese ratings agency is inevitable given the level of the country's acquisitions in Europe.

Easier to Make Chinese Company Check

Credit checks of Chinese companies have been made significantly easier with an online National Chinese Company Credit Information database providing free information about Chinese domestic companies to the public.

China's State Administration of Industry and Commerce has launched the National Company Credit Information System which is an online resource that provides free information about companies to the public. This followed the Provisional Rules on Enterprise Information Disclosure act which took effect on October 1 last year. The new disclosure act require all companies, foreign and domestic in the PRC to submit annual credit reports for public disclosure via the publicly available Enterprise Credit and Information Disclosure System which can be accessed online on a real-time basis. With the new online database, anyone can simply log in and access relevant financial, asset and legal liabilities information – greatly improving financial transparency among businesses in China.

- This is good news for anyone evaluating suppliers and potential business partners in China, says Per Linden, CEO of the consulting firm Scandic Sourcing. One year ago, credit disclosure companies stopped getting access to tax reports, which made it difficult to make credit checks of Chinese companies. To get accurate info, we had to ask the companies themselves to disclose their annual audit reports, which they may or may not do. Now, the publicly available Credit and Information Disclosure System circumvents all that, and I think this is a big step towards simplifying credit checks in China.

Screenshots from the search function of the new online resource for credit disclosure which Chinese companies (and any other company operating in China) are expected to submit their financial information to.

The information companies are required to provide includes corporate registration data, record filing, chattel equity pledge registration, mortgage registration, and notably administrative penalties levied by the Chinese Administration of Industry and Commerce. Look for the latter when evaluating a potential partner or supplier; it's an important indicator of a company's creditworthiness and integrity that used to be confidential. The companies themselves are responsible for the authenticity and legality of the information they disclose and spot checks on the disclosed information will be conducted; third parties may report any information they suspect is false.

Companies that fail to submit their reports in time will be recorded in the directory of companies with abnormal business operations and if the company fail to fulfill their disclosure obligations within three years, they will be recorded in the directory of companies with serious illegal conduct, and their legal representative or person-in-charge will be prohibited from becoming a legal representative or person-in-charge of any other company for three years.

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