Chinese Credit Agency Downgrades Western Nations

A leading Chinese credit rating agency has downgraded the credit ratings of major Western economies.

Telegraph’s Ambrose Evans Pritchard writes

``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.

Reason for the downgrade? (bold highlights mine)

``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.”

Some thoughts

China is possibly signaling to the West of a seismic change in the way things are being done or a structural transformation in the economic and political sphere.

Perhaps this will begin with a reduction in US treasury purchases, as China would possibly use her surpluses to fund more (ex-US) overseas acquisition or hedge them on real assets.

China may also use this to finance her integration with Asia and or as leverage to deepen her relationship with key emerging markets.

All these should put pressure to the du jour US dollar standard system.

This action seems representative of China's flaunting of her newfound economic might which should also filter into geopolitics.

If the US dollar should lose her international currency status, then this also should translate to an erosion of the US geopolitical hegemony.

Maybe this is just one of the the indications to what some has called as the Asian Century.