From the Daily Telegraph

Chinese rating agency strips Western nations of AAA status

China's leading credit rating agency has stripped America, Britain, Germany and France of their AAA ratings, accusing Anglo-Saxon competitors of ideological bias in favour of the West.

By Ambrose Evans-Pritchard
International Business Editor
Published: 9:17PM BST 12 Jul 2010


Dagong Global Credit Rating Co used its first foray into sovereign debt to paint a revolutionary picture of creditworthiness around the world, giving much greater weight to "wealth creating capacity" and foreign reserves than Fitch, Standard & Poor's, or Moody's.

The US falls to AA, while Britain and France slither down to AA-. Belgium, Spain, Italy are ranked at A- along with Malaysia.

Meanwhile, China rises to AA+ with Germany, the Netherlands and Canada, reflecting its €2.4 trillion (£2 trillion) reserves and a blistering growth rate of 8pc to 10pc a year.

Dominique Strauss-Kahn, chief of the International Monetary Fund, agreed on Monday that the rising East is a transforming global force. "Asia's time has come," he said.

The IMF expects Asia to grow by 7.7pc in 2010, vastly outpacing the eurozone at 1pc and the US at 3.3pc. Emerging nations hold 75pc of the world's $8.4 trillion (£5.6 trillion) of reserves.

Dagong rates Norway, Denmark, Switzerland, and Singapore at AAA, along with the commodity twins Australia and New Zealand.

Chinese president Hu Jintao said in April that the world needs "an objective, fair, and reasonable standard" for rating sovereign debt. Dagong appears to have stepped into the role, saying its objective was to assess countries using methods that would "not be affected by ideology".

"The reason for the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor's repayment ability," said Guan Jianzhong, Dagong's chairman.

The agency, known in China for rating companies, said its goal is to "correct the defects" of the existing system and offer a counter-weight to Western agencies.

Dagong appears to base growth potential on past performance but this can be misleading, especially in states enjoying technology catch-up. Japan was a high-flyer in 1970s and 1980s before stalling when the Nikkei bubble burst. It has been trapped in near perma-slump ever since.

China may start to face some of Japan's demographic problems by the middle of this decade when the working age population peaks.

The Western rating agencies put a high value on a long-established rule of law and government institutions that have proved resilient over many decades, or even centuries. China's political system may appear strong – as did the Soviet Union's – but only time will tell whether its foundations are brittle. The violent upheavals of the Cultural Revolution are still a very fresh memory.

Which currency?

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Unless otherwise specified, I am posting as a regular poster. When I will act as a mod, I'll make sure you're in no doubt.

Looks to me like the Chinese rating system is pretty good.

Certainly a better relative measure.

F

__________________
"Patriotism means being loyal to your country all the time and to its government when it deserves it."-- Mark Twain

"Inter arma silent Musae"--when the weapons speak, the muses fall silent.

An't nanum hearm deth, doth hwaet ye willath.

It is forbidden to kill; therefore all murderers are punished
unless they kill in large numbers and to the sound of trumpets. -Voltaire

Economic Left/Right: -3.88
Authoritarian/Libertarian: -4.36

If Dagong gains global credibility there may be some nasty surprises in store for clients of S&P, Moodys and Fitch.

The big bun fight will come if OECD regulators decide to accept Dagong's ratings. Unlike the Western credit rating agencies, Dagong does not appear to depend on fees from the entities whose credit it rates. From a slightly flakey web site:

Dagong Global Credit Rating Co. Ltd. (hereinafter referred to as "Dagong") is a specialized credit rating and risk analysis research institution founded in 1994 upon the joint approval of People's Bank of China and the former State Economic & Trade Commission, People's Republic of China (PRC), and is also a key credit information and credit solution service provider in China.

As the most influential founder of China's credit rating industry and market, Dagong has all franchise qualifications granted by the Chinese Government, and is an official institution providing credit rating services for all bond issuers in China.

As a pioneer in setting up credit rating standards on industries, regions and sovereignties in China, Dagong participated in designing and popularizing most of domestic debt instruments, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.

As a diversified financial credit information service provider, Dagong established the first Post-doctoral Research Station in rating industry to provide leading risk assessment technology and research services for capital market. Dagong has also founded China's first credit rating and risk management training school, Dagong Credit Management School, jointly with Tianjin University of Finance and Economics.

As the largest and most normalized credit rating agency in China, Dagong has more than 500 employees, including over 200 master or doctor analysts and 50 postdoctors. Up till now, Dagong has set up six regional headquarters, 34 branches and 2 overseas offices to provide credit information services for domestic and foreign clients.

As the most internationalized rating agency in China, Dagong has been recommended by the Ministry of Finance People's Republic of China (MOF) to participate in the construction of Asian bond market. Moreover, as a member of the Association of Credit Rating Agencies in Asia (ACRAA) and the advocate of China, Japan and Korea credit rating agency cooperation, Dagong plays an important role in constructing Asian credit system.

As a rating agency committed to build a national brand to the world, Dagong makes its mission integrate with state development strategy and national rejuvenation, in an effort to provide capital market with authoritative credit information and develop itself as a national credit rating agency having the bargaining power in international capital market by studying credit-related issues in both domestic and international market and seeking for solution.

This may turn out to be by far the best way to do credit ratings.

Who's paying for the ratings?

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Unless otherwise specified, I am posting as a regular poster. When I will act as a mod, I'll make sure you're in no doubt.