Entrepreneur pushes Chinese role in global credit
Guan Jianzhong is waging a one-man crusade to change the global credit rating industry.
His argument: China and other cash-rich developing nations shouldn't have to rely on ratings agencies in the deeply indebted United States - especially after they helped fuel the global crisis that plunged the US and then Europe into economic turmoil. The credit rating company that Guan leads, Dagong Global Credit Rating Co., is little known abroad and only issued its first ratings of government debt in 2010, declaring the United States a worse risk than China.
Its announcement caused barely a ripple. Months later Standard & Poor's cut America's prized AAA rating in the first such downgrade of US government debt in history. Now, the Chinese upstart is trying to attract foreign customers, promoting its own system that Guan says might serve emerging economies better than global agencies Moody's, S&P and Fitch. He accuses them of improperly basing ratings on Western political standards and treating heavily indebted US and European governments too favorably. "China is a creditor, so it should have a say in ratings," Guan said in an interview, referring to Beijing's $3.2 trillion in foreign reserves. "It should make ratings for the debtors. It should not be the debtors making ratings for creditors."
Guan's open criticism of his Western counterparts is unusual for his arcane industry but resonates with the ambitions of Chinese entrepreneurs to compete abroad and demands by the communist Beijing government for a leading role in managing the global economy. It also echoes complaints in other developing economies that Western ratings fail to give them full credit for economic reforms and growth. Critics say that forces their governments, companies and consumers to pay too much for credit.
Rating agencies play a key role in finance but got little public attention before markets froze in the 2008 crisis. Then the major agencies suffered a huge self-inflicted blow to their credibility after investors lost money on mortgage-backed bonds and collateralized debt that had been rated low-risk. The US government's Financial Crisis Inquiry Commission said the crisis "could not have happened without the rating agencies." "Ratings led to the crisis," Guan said. Today, rating downgrades are front page news as Europe struggles to resolve its debt woes.
Dagong, founded in 1994, is China's biggest domestic ratings agency but tiny by global standards, with 500 employees on three floors of a Beijing office tower - a fraction of 150-year-old S&P's 6,300 employees in 20 countries. Dagong says it has issued credit ratings for about 1,000 Chinese companies, while Moody's has rated 12,000 companies and 25,000 government debt issuers.
Beijing created a ratings industry in the 1980s to help modernize its financial system but its judgments carried little weight because officials controlled which companies could issue bonds. The industry has grown as Beijing has tried to improve efficiency by starting to build a market in recent years to trade corporate bonds.