Fitch Ratings Inc. said Sunday that Chinese companies will continue to be at an above-average risk as targets of fraud allegations, noting that these allegations could make it difficult for an affected company to access the capital markets. The agency noted that proving these allegations to be negative is a task that will take time to resolve.
Fitch said, "Such claims take time to counter and a key danger to Chinese companies is that whilst tackling claims of irregularities, a company with a 'blemished' reputation cannot access the capital markets, especially if there is an accompanying deterioration in investor sentiment in this segment."
In an analysis of its portfolio of about 40 Chinese companies, the ratings agency cited companies' use of Chinese accounting standards, choice of auditors, their listings on the Shanghai stock exchange, and ownership concentration as "key weakness indicators". The report also screens financial measures of the companies, such as revenue growth, working capital, taxes and profit margins.
Fitch noted that China's under-developed framework for corporate governance is a recurring theme. The agency said it regards the independent status of directors as sub-optimal where they have stayed on the board of a Chinese company for a number of years and rotation has not occurred.
Fitch said its ratings for Chinese companies already include an inherent discount for weak corporate governance compared to international capital market standards, in addition to issues such as an under-developed legal system and quality of information standards.
"International investor interest in Chinese corporates - driven by high levels of growth and the search for yield - is coinciding with low levels of internationalisation and limited access to information at key issuing entities," said John Hatton, Fitch's Group Credit Officer for Asia-Pacific Corporates.
Fitch's said its portfolio of roughly 40 Chinese companies is clustered around the 'BB' rating level and below, with mainly state-owned and state-supported companies rated higher at investment-grade and above.
Fitch becomes the second rating agency to assess risks of investing in companies from mainland China, following Moody's Investors Service, which last week raised warnings about accounting and corporate governance risks at Chinese companies.
Overseas-listed Chinese companies are being increasingly scrutinized for their accounting practices and allegations of fraud. Trading in the shares of several U.S and Canada-listed Chinese companies have been suspended following the allegations.
According to Fitch, the increased number of claimed irregularities remind investors of the poor global rankings of China in the World Bank's Perception Indicators.
"Arguably, overseas investors are now undertaking the job that China's under-developed capital market has hitherto struggled to address - challenging Chinese corporate management to adopt higher international standards," Hatton added.
Fitch also said its two-notch downgrade of Canada-listed Chinese timber plantation company Sino-Forest Corp. (TRE.TO) in mid-June, which preceded the recent withdrawal of its ratings on July 14, was driven by a particular feature of the company's business model which came to light earlier in the same month. The agency added that the downgrade was not due to a broader concern over governance issues.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.