Chinese Rating Agency Strips Western Nations of AAA Status

Credit agencies assign ratings based on the risk of timely payments, and some US agencies have been faulted for underestimating the risk of major Western corporations. Now, China’s Dagong Global Credit Rating Co. demonstrate wariness about debt held by developed nations as well as how western credit agencies like Standard & Poor’s, Moody’s or Fitch evaluate that debt. Dagong emphasizes “wealth creating capacity” and foreign reserves, reports Ambrose Evans-Pritchard for the Telegraph, whereas agencies based in the West emphasize “rule of law,” transparency and stable institutions. Dagong assigns a higher AA+ rating to China and AA for the US. Large global flows of capital have led to increased foreign investment in sovereign debt. China leads in nations holding US debt. Often sovereign rating is assessed first before judging the risk of specific companies of industries in the country. As lower ratings hike borrowing costs, the low Chinese assessment could give the US and other nations an incentive to slow borrowing. – YaleGlobal