Dagong on a tough road to break dominance
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A Chinese company unveiled China's own sovereign credit rating report on July 12, which is the first non-Western rating agency to assess the world's sovereign credit and risks.
Dagong Global Credit Rating Co. Ltd. released the credit rating report, which covers 50 countries worldwide. While lowering the ratings of some developed countries burdened with increasing debt, Dagong raised the ratings of some new emerging countries which have political stability and good economic performance.
A significant difference between Dagong and the three international rating agencies, i.e. Moody's, Standard & Poors (S&P) and Fitch, in terms of their rating results is that Dagong emphasizes more on the country's capability to pay its debt, according to the company.
"Intrinsically, the reason of 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 and provide the wrong credit rating information to the world," said Guan Jianzhong, the chairman and chief executive of Dagong.
Dagong is a specialized credit rating and risk analysis research institution founded in 1994, upon the joint approval of People's Bank of China and the former State Economic & Trade Commission. With more than 500 employees, it has six regional headquarters, 34 branches and two overseas offices to provide credit information services.
"Big Three" are questioned
Thomas L. Friedman, a columnist for The New York Times, once said, "There are two superpowers in the world today. There's the United States and there's Moody's Bond Rating Service. The United States can destroy you by dropping bombs, and Moody's can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful."
However, more and more people are realizing that these rating agencies may be not so trustworthy.
Dagong's report was released at a sensitive time, when people were complaining the Moody's, S & P and Fitch – the big three – are partly to blame for the Greece's debt woes.
In this report, Brazil and other emerging economies were rated higher by the Chinese firm, citing political stability and strong economic growth.
At the same time, the United States, France and other developed nations were rated much lower in Dagong's report because of their slow economic growth and increasing debt burden.
Different concept and methodology of rating
These differences result from the differences in the concept and methodology of the rating system, according to Dagong. It does not apply ideology as demarcation and fairly maintains interests of various circles in the national credit relationships.
Dagong's report gave much greater weight to "wealth-creating capacity" and foreign reserves than the other three agencies.
"Wealth-creating capacity, rather than borrowing capacity, is fundamental to a country's ability to pay off debts," said Guan Jianzhong.
The core standard of rating of the "big three" is the "borrowing capacity," which aims to protect the interests of debtor nations.
"Creditor nations are rated by agencies of debtor nations, which is actually putting the cart before the horse," Guan said.
US blocks Dagong's entry
But, Dagong hit a wall when it applied to the US Securities and Exchange Commission (SEC) for recognition as a ratings agency.
"The United States has rejected our entry. The first reason was that we didn't have an office in the United States," Guan said. "The second was that they would like to come to China to supervise us. But this is an infringement of China's sovereignty and our country wouldn't be able to allow this."
Guan also added that Dagong's application was in compliance with provisions of US securities laws and attributed the block to the U.S.'s desire to protect itself.
The "big three" have dominated the market for a long time. Compared with them, China's agencies lag behind in management experience, data accumulation, market influence, and above all things, a worldwide recognition.
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