David Prosser: China plots a move into credit ratings
Thursday 22 July 2010
Outlook Given the kicking the three big American credit-ratings agencies have taken for their failures during the financial crisis, they can hardly be surprised to see would-be rivals emerging. There is already talk of the launch of a new European agency, but the greater threat to Standard & Poor's, Moody's and Fitch might come from China.
There, Dagong Global Credit Rating, which already has a 25 per cent share of the domestic market, is becoming an increasingly aggressive international player.
Last week's pronouncements on Western economies, in which Dagong suggested that the US and Britain, among others, were overrated by the established agencies – and that China was under-rated – made quite a splash. Yesterday, Guan Jianzhong, chairman of the company, sought to press the case, arguing that since China is the world's largest creditor nation, it deserves a greater say on how borrowers are rated.
In fact, Dagong's business model suffers from the same inherent weakness as the agencies from which it seeks to take market share. Like them, it is funded by payments from the companies it rates, which leaves it struggling with the same conflicts of interest for which the big agencies have been so heavily criticised.
Still, by comparison to agencies that failed to notice the sub-prime timebomb being assembled in front of their noses, Dagong has a clean pair of hands. Nor should its arguments for upgrading China's rating and downgrading the AAA issuers of the West be dismissed as nationalist propaganda. The case it makes is sound.
What is really in Dagong's favour, however, is that China is a lender rather than a borrower – unlike most of the West. And if we want Chinese investors to continue to buy our corporate and sovereign bonds, we're going to have to start paying more attention to the views of its credit-rating agency.
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