Tuesday, September 07, 2010

Shakeup: Dagong Global (China) Sovereign Credit Ratings

The big three credit-rating agencies that totally missed the meltdown of the subprime mortgage market (Moody's, Standard & Poor's and Fitch) still give the United States a AAA credit rating. But there's a newcomer in the credit-rating game - Dagong Global Credit Rating - which has a very different view of the strength of U.S. finances.

Beijing-headquartered Dagong, the dominant credit agency in China, is pushing into international markets. This summer, it rated the sovereign debt of 50 nations making up 90 percent of the world's economy. While Americans still tend to regard U.S. Treasuries as the "safest investment in the world," Dagong gave our debt a mere AA - lower than that of 12 other countries (including China, which it awarded an AA+). To add insult to injury, the firm declared the U.S. outlook to be "negative."

China's unique ratings focus

The established foreign agencies tilt their ratings to reflect "their beliefs and ideology" and the "interests of the borrowing countries" in the West. They place too much emphasis on the nature of a country's political system, the status of its currency as internationally reserved currency, and per capita gross domestic product (GDP).

Moody's, S&P and Fitch were widely criticized by the international community for giving overly positive grades to mortgage-related investments and their failure to disclose risks, which led to the US subprime mortgage crisis and later triggered the 2008 worldwide financial crisis.

Dagong, in contrast, focuses on a country's fiscal strength, foreign currency reserves and ability to create wealth.


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Credit Ratings