China Throwing World’s “Biggest Creditor Nation” Weight Around

China Throwing World’s “Biggest Creditor Nation” Weight Around

By Rocky Vega

07/22/10 Alexandria, Virgina — In a recent Financial Times interview, Guan Jianzhong, chairman of Dagong Global Credit Rating Co., lashes out with harsh words against “politicised and highly ideological” Western rating agencies. Guan insists Dagong Global ratings are superior to those of his competitors. He defends his agency’s assessment, of rating China’s debt higher than the US, as being due to its status as “the biggest creditor nation in the world.”

According to the Financial Times:

“’The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,’ Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. ‘China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.’

“On the corporate side, Mr Guan [...] specifically criticised the practice of ‘rating shopping’ by companies who offer their business to the agency that provides the most favourable rating.

“In the aftermath of the financial crisis ‘rating shopping’ has been one of the key complaints from western regulators, who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.”

The big three ratings agencies — Moody’s, Standard & Poor’s, and Fitch — have encountered plenty of well-deserved criticism. First, for failing to accurately assess mortgage-backed debt before the housing market’s collapse. Then, once again, for being slow on the trigger in downgrading countries with overwhelming sovereign debt, a problem whose full scope is still coming to light.

However, Guan saved his most stinging critique for the US as whole for later in the interview, stating…

“’The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings,’ Mr Guan said. ‘Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.’”

Guan looks to be itching for a showdown with the Western rating agencies he so firmly dismisses. The US is fiscally troubled, and the federal deficit is not unsustainable on its present course. However, broaching the topic of the “huge military expenditure of the US” — which is, of course, funded partly by debt — as unsupportable must be a brand new credibility-building tactic in the ratings business. Well, it’s new to us. It’s probably safe to say that from Guan Jianzhong we haven’t heard the last of this yet.

You can check out more of the interview in Financial Times coverage of the China rating agency condemning its rivals.

Best,

Rocky Vega,
The Daily Reckoning

Rocky Vega
Rocky Vega is a regular contributor to The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.

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