China unveils first sovereign credit rating standards

China View reports that China unveils first sovereign credit rating standards.

(emphasis mine)

China unveils first sovereign credit rating standards
www.chinaview.cn http://imgs.xinhuanet.com/icon/2006english/2007korea/space.gif2009-05-23 20:53:19
Editor: Wang Guanqun

BEIJING, May 23 (Xinhua) -- China unveiled Saturday credit rating standards for the sovereignty entity of a central government, the first sovereign credit rating standards in China, aiming broader participation in global credit rating.

The standards were announced by Dagong Global Credit Rating Co., Ltd, one of the first domestic rating agencies in China.

The sovereign credit rating standards would be able to evaluate the willingness and ability of a central government to repay its commercial financial debts as stipulated in contracts, said the company.

The rating results could reflect the relative possibility of a central government to default as a debtor, and the rating is based on the country's overall credit value, according to Dagong.

My reaction: As China's financial system becomes more sophisticated, China is quickly cutting its reliance on the services provided by Wall Street and the western banking system. The new Chinese credit rating standards for the sovereignty entities is part of this process.

By developing its own credit rating agencies, China is aiming at broader participation in global credit rating. Since the reputation of US credit rating agencies has been badly damaged by the financial crisis, they are not in a position to defend themselves against this challenge to their authority. Chinese rating agencies will soon play a much bigger role in the global financial system, especially in China.


Key question: How will Dagong Global Credit Rating rate the US?

Since Chinese rating agencies has developed sovereign credit rating standards capable of evaluating "the willingness and ability of a central government to repay its commercial financial debts as stipulated in contracts", it stands to reasons they will use these new standards to judge the US's credit worthiness. Furthermore, unlike America's rating agencies (Moodie, S&P;, etc...) which currently dominate the field, Chinese rating agencies are outside the US sphere of influence. It will be very interesting to see what rating they come up with.

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5 Responses to China unveils first sovereign credit rating standards

  1. dashxdr says:

    I can predict the ratings:

    USA = F-
    UK = F
    Germany = A
    Japan = C
    Brazil = B
    India = B
    China = AAA

    Oh wait...those are my ratings.

  2. I believe there will be a simple formula based on debt, ability and desire to limit debt, and global financial status. The day after it is public, the world will forget wall street ratings and use these.

  3. Anonymous says:

    As a scientist, I have been amazed that people still trust anything the 3 American credit rating agencies say and have said. It seems to me that the current crisis is not bad enough and people WANT even more pain from them.

    I see more harm from them than value.

    I remember something in the first page of a chemistry book:

    "Common sense is not common"---Voltaire.

    Why don't people trsut common sense? They don't have it? For me, the Treasures is junk. Besically USA is bankrupt. No question.

  4. Jeff Nielson says:

    Good post, Eric!

    It looks like this move is also another prerequisite for assuming the mantle of "reserve currency".

  5. Numonic says:

    Speaking of credit problems, check out this article if you haven't about commerical mortgages. It also gives important dates which i know allot of people want. People want to know when to expect the $hit to hit the fan. Well this article says:

    "As in housing, many commercial properties have mortgages that were bundled together in pools, sliced and diced and instead of being held by banks were sold to investors as bonds and securities. Thousands of these commercial mortgage-backed securities, or CMBS, are reaching their maturity dates over the next three years. Ten-year mortgages issued in 1999 and 2000 start coming due late this year, and five-year loans issued from 2005 to 2007 come due early next year.

    'If you stop and think about what is coming up for maturity over the next couple of years, either on the banks' books or CMBS, there is going to be a day of reckoning as those loans mature and they have to be rebalanced and reset to today's underwriting standards,'' said Blakely, who worked 17 years as a bank regulator followed by 17 years as a bank executive and risk officer.
    "

    also...

    "''On the street, the rumor is it is coming and it's going to come fast and furious. Some people are predicting September,'' said Paul Waters, a New York-based executive vice president of brokerage operations in North America for NAI Global, a top-five commercial real estate brokerage with operations across the globe."

    Are commercial mortgages the next crisis?
    The renewal date is fast approaching for thousands of commercial mortgages valued at hundreds of billions of dollars.
    BY KEVIN G. HALL
    McClatchy Newspapers

    http://www.miamiherald.com/business/v-fullstory/story/1030127.html

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