This paper creates default-probability-(PD)-implied credit ratings for Chinese firms following the S&P global rating standard. The domestic credit rating agency (DCRA) ratings are higher than the PD-implied ratings by ten notches on average for the identical level of default risk, implying that the domestic ratings are significantly inflated. The PD-implied ratings outperform the DCRA ratings in detecting defaults and complement the latter in predicting yield spreads. The PD-implied ratings draw information from operating efficiency-related variables; in contrast, the DCRA ratings pay attention to scale-based firm characteristics in credit risk assessment.