27 July 2010

China rates the world

In yet another sign of China's emergence as an economic powerhouse, the top China-based credit rating agency, Dagong International Credit Rating Company, is challenging the dominance of the big three - Fitch, Moody's and Standard and Poor's. According to Dagong CEO Guan Jianzhong, “Intrinsically, the reason [for] the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor's repayment ability and provides the wrong credit rating information to the world." Chinese president Hu Jintao has expressed similar concerns.

Reflecting this criticism, Dagong has concluded that certain leading Western nations are no longer worthy of AAA ratings and has brought them down a peg. In its rating of 50 countries that make up 90 per cent of the world's economy, Germany has been downgraded to AA+, The United States to AA, and Britain and France to AA-. Dagong limits the top rating of AAA to Norway, Denmark, Luxembourg, Switzerland, Singapore, Australia and New Zealand. Canada rates AA+, along with the Netherlands, China and Germany.

Given the failures of Western agencies in the run-up to the recent financial collapse, the Chinese seem justified in their concerns. Time will tell whether Dagong will do any better. In any case, the odds are good that it and other China-based agencies will be increasingly influential.

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