The western rating agencies are politicised and highly ideological and they do not adhere to objective standards
– Guan Jianzhong, chairman, Dagong Global Credit
Politicised, highly ideological western rating agency Moody’s placed the People’s Republic of China’s A1 rating on review for upgrade on Friday.
As Moody’s said in its statement:
The main reasons for the decision are:
1. The resilient performance of the Chinese economy following the onset of the global financial crisis, and expectations of continued strong growth over the medium term.
2. The government’s quick, determined and effective stimulus program, the unwinding of which has begun.
3. The lack of erosion in central government financial credit fundamentals, and the likely containment and effective management of prospective, contingent losses arising from the extraordinary credit expansion in 2009.
The orchestration of an extraordinary economic stimulus program has so far only modestly affected government finances. With a policy intention to contain the budget deficit to 3% of GDP this year, and with the likelihood that direct government debt will remain below 20% of GDP, the government will likely be able to finance its deficits readily and at low cost from the country’s large pool of national savings…
With net international financial assets equal to about 50% of GDP — bolstered by almost $2.5 trillion in official foreign exchange holdings — only a handful of highly rated advanced industrial economies, such as Norway, Switzerland, Japan, Hong Kong and Singapore, have a stronger international investment position than China…
And in terms of Chinese banks’ possible risks to China’s credit:
Although Moody’s has concerns over the intrinsic, stand-alone strength of China’s banking system, we nonetheless recognize that its largest banks have not been materially damaged by the global crisis. Therefore, the dominant banks in the system will not likely pose any sizable contingent liability risk to the government’s balance sheet.
Moody’s further expects that future credit losses — arising from the surge in lending in 2009, from exposure to the property market, from risky loans to local government financing vehicles, and from off-balance sheet operations in the “shadow” banking system — will be mostly absorbed by the banks themselves, either from capital, or from future earnings.
However, transparency is lacking on the extent of such potential losses. While uncertainty persists about the size and soundness of off-balance sheet local government financing operations in particular, we also believe that the central government has ample fiscal headroom to absorb future losses.
Moody’s also placed the ratings of CNOOC and China Mobile on review for upgrade. So goes the state, so go the state-owned enterprises.
The Shanghai Composite, for one, was pretty pleased with the news on Friday (chart via Reuters):
Which can only mean that the nefarious western ratings conspiracy has penetrated China even further (horror!) than Guan Jianzhong imagined.
Related links:
Dagong gets defiant - FT Alphaville
Clutching at the Chinese – FT Alphaville