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 amid efforts by China to boost its influence in global markets.
Dagong International Credit Rating Co.'s verdict was a break with Moody's, Standard & Poors and Fitch, which say U.S. government debt is the world's safest. Dagong said it rated Washington below China and 11 other countries such as Switzerland and Australia due to high debt and slow growth. It warned the U.S. is among countries that 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 June's G-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 Sunday took place at the headquarters of the Xinhua News Agency, the ruling Communist Party's main propaganda outlet.
Dagong's chairman, Guan Jianzhong, said the current Western-led rating system is to blame for the global crisis and Europe's debt woes. He said it "provides the wrong credit-rating information" and fails to reflect changing conditions.
"Dagong wants to make realistic and fair ratings," he said.
Beijing has more than $900 billion invested in U.S. 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 United States, some other developed nations such as Britain and France also received lower ratings than those of other agencies.
Dagong rated U.S. government debt AA with a negative outlook, below the firm's top AAA rating. It warned that Washington, along with Britain, France and some other countries, might have trouble raising more money if they allow 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 said it hopes to "break the monopoly" of Moody's Investors Service, Standard & Poors and Fitch Ratings. Their reputation suffered after they gave high ratings to mortgage-linked investments that soured when the U.S. housing market collapsed in 2007.
Manoj Kulkarni, head of credit research for SJS Markets in Hong Kong, said that despite the possibility China's government might try to influence Dagong's decisions, there is room in the market for a Chinese agency because Western firms' credibility is badly tarnished.
"As long as there is another opinion and it is backed up, I don't really think a China-based company will have an incentive to rate, say, Indonesia any better than a U.S.-based rating agency," Kulkarni said.
"If it comes to Chinese government-related companies, maybe there might be a conflict of interest, and investors would have to be aware of that fact," he said.
Chinese leaders have appealed repeatedly to Washington to safeguard their country's U.S. holdings and avoid taking steps in response to the global crisis that might weaken the dollar or the value of American assets.
Dagong rated China AA-plus with a stable outlook — higher than Moody's A1 and S&P's A-plus — due to rapid growth and relatively low debt.
Ahead of it were seven countries including Switzerland, Australia and Singapore that received the top rating of AAA, the same as those from Western agencies. Canada and the Netherlands also ranked above China.
Dagong's stronger ratings for emerging economies echoed market sentiment toward some countries such as China and India. They are seen as better risks than their credit ratings suggest and pay lower rates.
SJS Markets' Kulkarni noted that Western agencies give the two Asian giants a lower credit rating than Spain, despite their strong growth and the Spanish government's debt problems.
Developing countries "tend not to get full credit" for their economic performance, he said. "Ratings are basically lagging."
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