Moody’s scrambles red flags amid China accounting concern

ACCOUNTING CONCERNS at US-listed Chinese companies have spurred Moody’s into action. The ratings agency has screened more than 50 companies against 20 red flag categories.

Weak corporate governance, risky business models, fast-growth strategies, poor earnings quality and audit concerns would all trigger the flags, Reuters reports; 49 junk-rated firms triggered at least three alarms, with several tripping 10 or more.

“Our ratings already account for the inherent challenges in assessing these Chinese companies: their short history of operations, their diverse industries with limited peers for comparison, their concentrated family ownership structures and their high-growth environments,” said Moody’s.

Around 80% of companies operating predominantly in China are awarded junk ratings by Moody’s; this compares to China itself, which has a sovereign rating of Aa3, one of the highest investment grade levels.

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