US and UK credit rating downgraded by Chinese
But after failure of Western credit rating agencies to foresee financial crisis, has Chinese upstart got a point?
By Tim Edwards
JULY 13, 2010
While the European Union considers regulating the activities of the credit rating agencies Fitch, Moody’s and Standard & Poor’s – and perhaps even setting up a new agency to supplant them – a Chinese body has attempted to revolutionise the whole sector by summarily downgrading the US and Britain.
Dagong International Credit Rating Co, a company that normally rates bonds, has branched out into rating the creditworthiness of nations – and the debt levels of countries such as the US and Britain means they are downgraded below countries such as China, which boasts huge reserves of £2 trillion.
Economic growth rates also carry more weight in the Dagong ratings compared to the US credit rating agencies (CRAs) Fitch, Moody’s and Standard & Poor’s. That means Brazil, for instance, gets an A- ‘stable’ rating – better than the BBB- it gets from the US CRAs.
China gets an upgrade to AA+ – alongside Germany. The US and Britain, which are given AA and AA- respectively for their budget deficit problems are downgraded from the top-rated AAA rating they normally enjoy from Western CRAs. Dagong saves its own AAA rating for the likes of commodity-rich Australia, Norway and New Zealand.
Dagong says it hopes to “break the monopoly” of the big three US CRAs. The company’s chairman, Guan Jianzhong told China Daily the current Western rating system “provides the wrong credit-rating information” and fails to reflect changing conditions.