Ever wondered what sovereign ratings 
might look like?
You know, the kind of ratings that China president Hu Jintao might have had in mind when he called for a more accurate ratings system at last month’s G20 meeting? Well, here’s your chance.
Over the weekend, Dagong Global Credit Rating Co., a Beijing-based rating agency and one of four dominant agencies in the PRC, published its first ever sovereign risk assessment.
And as Dagong noted in its press release:
On the morning of July 11, 2010, Dagong Global Credit Rating Co., Ltd., a professional rating agency of China, released its sovereign credit risk reports of 2010 and for the first time the sovereign credit risk ratings for 50 Countries in Beijing. As a non-western rating agency, this is not only the first one in China, but also the first one in the world, that releases information on sovereign credit risks.
The results of Dagong’s assessment have been making headlines early this week, since they, err, diverge somewhat with those of western rating agencies like Moody’s, Fitch, Standard & Poor’s et al.
Spot the differences:
The US and the UK have been stripped of their triple-As — while China has been swiftly promoted to AA+. Cue consternation among, and criticism from, some Anglo Saxon media outlets.
That said, the US and UK aren’t the only ones to have fallen from grace in Dagong’s system. Germany, Japan and the Netherlands have also slipped. Are you sensing a pattern yet?
Here’s what Dagong says:
A significant difference between Dagong and the three international rating agencies, i.e. Moody’s, S&P and Fitch in terms of their rating results is that Dagong emphasizes more on the country’s capability to pay its debt. If you analyze the rating grades (regardless the difference of + or – symbol), the three international rating agencies do not have much differences in their ratings to a particular country. However, Dagong’s ratings are quite different from theirs. Among these 50 countries, 27 countries received obviously different ratings from Dagong. Those countries which have received higher ratings are mainly the new emerging countries which have political stability and good economic performance. Those countries which have received lower ratings are many developed countries which have shown economic growth and are heavily burdened with increasing debt. These differences are caused by different rating concept and method which have been used by Dagong. More importantly, during the rating process, Dagong has insisted to extend a fair rating which should not be affected by the ideology in the country.
Fascinating stuff — and we wonder if it might gain some traction given current worries over the booming debts of the developed world. That said, it’s obvious this is useful from a Chinese perspective.
Dagong says it wants to break the big three Western rating agency monopoly and “win the right for financial pricing in the process of RMB internationalization.” Not to mention launch a whole new credit era:
It is said that the number of the countries that Dagong gives credit rating will be over 100 every year, which are all based on this new sovereign credit rating standards. [Dagong chairman and CEO] Guan Jianzhong said: “I sincerely hope that the sovereign credit risk research results of Dagong can illuminate the direction for the people who are looking for business opportunities in the vast risk sea, and usher the human beings in the credit era in a new spring”.
(H/T Credit Writedowns)
Related links:
Agents of China’s desire – Business Spectator
Testing the AAA boundaries – FT Alphaville
Could sovereign debt be the new subprime? – Gillian Tett, FT
I heart China, says Chinese ratings agency – Beyond Brics