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Guide to the Global Credit Risk
Grasp the Leading voice in
International Rating
On the morning of July 11, 2010, Dagong Global Credit Rating Co., Ltd., a
professional rating agency of China, released its sovereign credit risk reports
of 2010 and for the first time the sovereign credit risk ratings for 50
Countries in Beijing. As a non-western rating agency, this is not only the first
one in China, but also the first one in the world, that releases information on
sovereign credit risks.
The on-going financial crisis which originated from the U.S. and the latest
Greek debt crisis, have fully reviewed the shortcomings and defects of existing
sovereign credit rating agencies. In this context, the international community
has reached consensus to reform the existing international credit rating system.
Chinese President Hu Jintao has lately stressed at the fourth G20 summit in
Toronto that : "we must develop an objective, fair, reasonable and uniformed
method and standard for sovereign credit rating, so that the rating result can
precisely reflect a country's economic situation as well as its level of credit
risk."
In this background, Dagong has recently assigned sovereign ratings for 50
countries for the first time, the geographic locations of which are in different
continents around the world. Among them ,20 countries in Europe, 17 countries in
Asia, 2 in North America, 6 in South America, 3 in African and 2 in Oceania. The
total GDP of these 50 countries accounted for 90% of that of the whole world,
and nearly all the characteristics of typical regional credit risk are involved.
It reveals the distribution of credit risks around the world as well as and
their changing trend. Among the 50 countries, the local currency sovereign
credit risk for such countries as Norway, Australia, Denmark, Luxembourg,
Switzerland, Singapore, New Zealand were assigned "AAA" ratings; China, Canada,
the Netherlands, Germany were assigned "AA +"s, the United States and Saudi
Arabia "AA"s; France , the United Kingdom, Korea and Japan got "AA-"s. The
countries that were assigned local currency sovereign credit rating of "A-"
level include Belgium, Chile, Spain, South Africa, Malaysia, Estonia, Russia,
Poland, Israel, Italy, Portugal and Brazil.
A significant difference between Dagong and the three international rating
agencies, i.e. Moody's, S&P and Fitch in terms of their rating results is
that Dagong emphasizes more on the country's capability to pay its debt. If you
analyze the rating grades (regardless the difference of + or - symbol), the
three international rating agencies do not have much differences in their
ratings to a particular country. However, Dagong's ratings are quite different
from theirs. Among these 50 countries, 27 countries received obviously different
ratings from Dagong. Those countries which have received higher ratings are
mainly the new emerging countries which have political stability and good
economic performance. Those countries which have received lower ratings are many
developed countries which have shown economic growth and are heavily burdened
with increasing debt. These differences are caused by different rating concept
and method which have been used by Dagong. More importantly, during the rating
process, Dagong has insisted to extend a fair rating which should not be
affected by the ideology in the country.
In the speech entitled "provide just credit rating information to the world",
Guan Jianzhong, the Chairman and Chief Executive of Dagong, said:
"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". He pointed out that in the context of credit
globalization; the current international credit rating system is not able to
assume the public responsibility of providing credit risk of debtor countries to
the world. The fact of Dagong releasing 50 countries' credit ratings relying on
its new country credit rating standard is demonstrating that an emerging rating
agency has begun to play an important role in international credit rating filed
and it will make significant contribution in reforming the unjust international
rating system.
What is Dagong's new country credit rating standard? Guan Jianzhong said. The
core elements of this standard are the "national governance capacity, economic
strength, financial strength, fiscal strength and foreign exchange strength."
the core concept of Dagong sovereign rating standard is: the wealth creating
capacity is the fundamental for a country to support its national borrowing
capability and the source of debt payment. Based on the general principles of
the formation of credit-debt relations, Dagong decides on the final credit
rating of each country by studying the interrelationship of related factors and
considering the country-specific circumstances through a complex analysis
process.
As elaborated, in its rating process, Dagong stresses on five principles as
follows:
First, a systemic evaluation of the country's comprehensive institutional
strength and its fiscal status;
Second, the fiscal status is the decisive factor for the government to pay
its debt;
Third, the government capacity to increase its revenue is the fundamental
factor to the country to pay its debt while its capacity to borrow is not the
guarantee factor;
Forth, the comprehensive institutional strength has a prominent role in
protecting the stability of the country's credit when the country is facing the
more frequent external shocks;
Fifth, make sure that the statistics and information are reliable, timely and
consistent.
At the conference of Dagong Sovereign Credit Risk Report in 2010 and its
Reports of 50 sovereign credit ratings, Executive Vice President Zheng Xinli
from the China International Economic and Exchange Center, Finance Secretary Xu
Lin, Director-general and Kong Linglong, Director-general from the National
Development and Reform Commission, the senior officials from China Securities
Regulatory Commission, Chief Representative of Asian Development Bank in
Beijing, Jiang Yong, Director-general of Economic Security Research Centre,
China Institute of Contemporary International Relations Research Center, Chief
Economist Wang Jianye from Export-Import Bank of China, Professor Wu Jingmei
from Institute of Finance and Economics, Renmin University of China, and many
other experts and scholars make speeches.
Experts are of the view that China's independently sovereign credit rating
agency committed to win speaking vice in international rating field is important
for china to maintain its financial sovereignty and promoting the reconstruction
of the international credit rating system. On one hand, by distributing
objective and impartial sovereign credit risk information to the world, Dagong
will dedicate itself in changing the imbalanced utilization of current
international credit resources, breaking the monopoly of three international
agencies of credit rating, and promoting global economic development in a
sustainable and balanced manner. On the other hand, by supporting the country to
win the right in international financial business and setting the related rules
and especially, providing services to win the right for financial pricing in the
process of RMB internationalization, Dagong will make its best efforts.
While experts expressed support and appreciations to Dagong for its releasing
50 sovereign credit ratings, they also called for relevant government agencies
to pay close attention to making use of the Dagong Rating Reports which are the
achievements under the new country credit rating standard. They also expect
national credit rating agency can obtain the right in international rating field
and make greater contribution to the reconstruction of international rating
system.
Dagong Global Credit Rating Co., LTD is a well known rating agencies in China
and its sovereign credit rating started in 2007. Beginning from the study of the
nature and inherent law of global credit economy, Dagong has continuously probed
into the various basic elements that affect sovereign credit risks and the
intrinsic link between them, and make a groundbreaking study on national credit
rating standards. Dagong released our country's first national credit rating
method with independent intellectual property rights in May 2009 and developed a
full set of documents regarding new sovereign credit rating standard. Dagong's
sovereign credit rating standard is quite different from those of the three
major international rating agencies in the rating standpoint, thinking mode,
theoretical system and analytical methods. Its standard fair is more scientific
and objective. Its outstanding feature is the technology innovation in 10
aspects of the national credit rating, with the objective to correct the defects
of the existing rating standards in considering the characteristics of the
sovereign credit risks. Dagong's method can reveal the sovereign credit risks
more objectively and accurately.
It is said that the number of the countries that Dagong gives credit rating
will be over 100 every year, which are all based on this new sovereign credit
rating standards. Guan Jianzhong said: "I sincerely hope that the sovereign
credit risk research results of Dagong can illuminate the direction for the
people who are looking for business opportunities in the vast risk sea, and
usher the human beings in the credit era in a new spring". |