Monday, July 12, 2010

Chinese rating agency warns on US debt

July 12, 2010 -- By Joe McDonald Beijing

A Chinese firm that aims to compete with Western rating agencies declared Washington a worse credit risk than Beijing in its first report on government debt yesterday amid efforts by China to boost its influence in global markets.

Dagong International Credit Rating's verdict was a break with Moody's Investors Service, Standard & Poor's (S&P) and Fitch Ratings, which say US government debt is the world's safest. Dagong said it rated the US below China and 11 other countries such as Switzerland and Australia due to high debt and slow growth. It warned the US might face rising borrowing costs and risks of default.

The report comes amid complaints by Beijing that Western rating agencies fail to give China full credit for its economic strength, boosting borrowing costs, a criticism echoed by some foreign analysts.

At last month's Group of 20 summit in Toronto, President Hu Jintao called for the creation of a more accurate system.

Dagong, founded in 1994 to rate Chinese corporate debt, says it is privately owned and pledges to make its judgments impartially. But in a sign of official support, its announcement yesterday took place at the headquarters of the ruling Communist Party's main propaganda outlet.

Dagong's chairman, Guan Jianzhong, said the Western-led rating system was to blame for the global crisis and Europe's debt woes. He said it "provides the wrong credit rating information" and failed to reflect changing conditions.

"Dagong wants to make realistic and fair ratings."

Beijing has more than $900 billion (R6.8 trillion) invested in US Treasury debt and has appealed to Washington to avoid hurting the value of the dollar or China's holdings as it spends heavily on its stimulus.

Dagong's report covered 50 governments and gave emerging economies such as Indonesia and Brazil better marks than those given by Western agencies, citing high growth.

Along with the US, some other developed nations such as Britain and France received lower ratings than those awarded by other agencies.

Dagong rated US government debt AA with a negative outlook, below the firm's top AAA rating. It warned that the US, along with Britain, France and some other countries, might have trouble raising more money if they allowed fiscal risks to get out of control.

"The interest rate on debt instruments will run up rapidly and the default risk of these countries will grow even larger," its report said.

Dagong rated China AA plus with a stable outlook - higher than Moody's and S&P - due to rapid growth and relatively low debt.