Xinhua News Agency, Beijing, April 29 (Xinhua) -- Fairness or Tools?—— U.S. International Rating Agencies and Global "Rating Hegemony"
Xinhua News Agency reporters Yan Jie, Du Juan, Su Liang
Recently, the international rating agency Fitch has frequently "attacked" China, first downgrading the outlook of China's sovereign credit rating, and then downgrading the credit rating outlook of China's six major state-owned banks. Economic analysts generally believe that the ratings are unfair and unjust, and do not objectively reflect China's economic growth prospects.
Why does Fitch come to a conclusion that is contrary to the perception of professionals? In fact, Fitch and other international rating agencies in the United States, relying on their monopoly position and flaunting the banner of "objectivity," have become a "political tool" for the United States to deny the institutional advantages of other economies and maintain its global hegemony.
For a long time, this situation has led to the emergence of unfair and irrational phenomena in the global financial market, which has become an important reason for the difficulty of financing and development in the global South.
This is a Wall Street sign next to the New York Stock Exchange taken on October 30, 2020. Photo by Xinhua News Agency reporter Wang Ying
It is impossible to predict the Chinese economy
Analysts said Fitch's downgrade of China's sovereign credit rating outlook and the credit rating outlook of China's six major state-owned banks is a direct manifestation of a deliberate underestimation of China's economic growth. At the technical level, the downgrade is an overestimation of risk and underestimation of growth potential, and from a point of view, the downgrade of China is an act of distorting facts and creating negative expectations.
On the one hand, Fitch alludes to the high risk of Chinese government debt, but the data does not support this conclusion.
According to the National Balance Sheet Research Center of the Chinese Academy of Social Sciences, the debt ratio of China's government sector was 55.9% at the end of last year. According to the Bank for International Settlements, the average government debt ratio of G20 countries is around 94%.
On the other hand, Fitch, an important component of the sovereign credit rating system, has a significantly lower forecast for China's economic growth in 2024 than other institutions, raising questions about the reliability of its sovereign credit rating results.
Dagong International Credit Rating Co., Ltd. recently published an article on its official website, saying that international rating agencies have a one-sided understanding of China's national conditions and policies, and fail to accurately understand the comprehensiveness, scientificity and rationality of China's macro policies, and its credit rating methodology is not applicable to developing economies, so it cannot reflect the true situation of China's sovereign credit.
Marcos Pires, director of the Institute of Economics and International Studies at the State University of São Paulo in Brazil, said the purpose of the downgrade was to try to shake the market's confidence in the Chinese economy.
He said: Under the influence of the US monetary policy, there is no economy in the world today that does not face challenges, and China has adopted effective policies in the face of challenges, turning difficulties into opportunities, and China's economic development is unstoppable. Rating agencies trying to promote pessimism through "downgrading" are tantamount to a tree without roots and water without a source.
China's Ministry of Finance said in response to a question about Fitch's downgrade of China's sovereign credit rating outlook that the indicator system of Fitch's sovereign credit rating methodology fails to effectively and forward-looking reflect the positive effect of fiscal policy on promoting economic growth and stabilizing the macro leverage ratio.
The relevant person in charge of the Ministry of Finance said that in the long run, maintaining a moderate deficit scale and making good use of valuable debt funds is conducive to expanding domestic demand, supporting economic growth, and ultimately maintaining good sovereign credit. The Chinese Government has always adhered to the multiple objectives of supporting economic development, preventing fiscal risks and achieving fiscal sustainability. The long-term positive trend of China's economy has not changed, and the Chinese government's ability and determination to safeguard its good sovereign credit have not changed.
This is the City of London photographed in London, England, on January 31, 2020. Xinhua News Agency, photo by Tim Ireland
Can't rate "real default"
At present, the global credit rating industry is highly concentrated, and the "Big Three" of Moody's, Standard & Poor's and Fitch have almost complete control of the global rating market.
Looking back at the development history of these three US rating agencies, it can be found that in the process of establishing global hegemony in the United States, they have gradually gained a monopoly advantage in the industry, and have mastered a set of "rating hegemony" that sets a "ceiling" for the financing ability of rating targets according to their own likes and dislikes. Since there is no objective benchmark in the global financial markets, credit ratings are more like a financial game.
In assessing sovereign credit ratings, the three major rating agencies often proceed from ideology and self-interest, denying the characteristics and advantages of other political and economic systems, and in fact becoming a tool for promoting the ideological and political stance of the United States.
The three major rating agencies have a close relationship with the capital market, and it is difficult to assess credit risk objectively and scientifically, so there are often rating errors, and in many cases, they even become the "catalyst" of the crisis.
Jeffrey Sonenfeld, a professor at the Yale School of Management, pointed out that over the past 50 years, the three major rating agencies as a whole have been almost unable to accurately predict "every real default" by sovereign governments and corporate borrowers.
Harvard University economist Carmen Reinhardt found that the three major rating agencies missed almost every major economic crisis before the global sovereign debt default, including the Latin American debt crisis in the 80s of the 20th century, the Asian financial crisis in 1997, the international financial crisis in 2008 and the European debt crisis in 2010.
For example, in the early days of the Asian financial crisis in 1997, the three major rating agencies were slow to respond and failed to detect the severity of the Thai baht and won crises in the first place. The crisis spread, and the three major institutions abruptly downgraded many Southeast Asian countries in order to save their reputations, which accelerated and aggravated the crisis.
The 2007 U.S. subprime mortgage crisis was also linked to the three major rating agencies. In the years leading up to that, the big three institutions had overrated a lot of junk debt during the economic boom, resulting in an increasing proportion of high-risk subprime mortgages. When the crisis emerged, the rating agencies were slow to downgrade the relevant companies, resulting in the market's misjudgment of risks.
Farmers inspect crops in a maize field near Harare, Zimbabwe's capital, on April 3. Zimbabwean President Emmerson Mnangagwa has declared a state of disaster across the country due to a severe drought caused by the El Niño phenomenon. Xinhua News Agency, photo by Sean Jusa
Digging a hole for the development of the Global South
According to the German Institute for African Policy Research, the sovereign credit ratings of African countries by the three major rating agencies have been "more frequent, more active, and worsening" in recent years. This kind of "unsolicited" sovereign credit rating is not based on the issuer's requirements, but is the operation of the rating agency's "own filter".
The logic behind this is that poor credit ratings mean higher risk, which often leads to higher costs of borrowing from international capital markets. Credit rating downgrades can lead to African governments having to pay more interest on the debt they owe. In order to prioritize debt servicing, some African governments have been forced to pursue tight macroeconomic policies, which are often detrimental to long-term investment and economic growth, and have a negative impact on the prevention and resolution of debt crises.
The victims are not just African countries. In recent years, developing economies and emerging market countries have promoted the Belt and Road Initiative, but the international credit rating system dominated by the three major rating agencies has long imposed different rating standards on them than those of Western developed economies.
In essence, the current international credit rating system is a rating standard set by developed economies such as the United States in their own favor, which reaps the benefits of developing economies by giving high marks to their own credit ratings and low ratings to the credit ratings of developing economies. Because of this, one can see such a "strange phenomenon" that emerging economies have made great strides in wealth creation, economic growth, etc., but have very low credit ratings.
The traditional international credit rating system controlled by the three major rating agencies is seriously unbalanced, obviously biased in favor of the United States, Western countries and enterprises, and it is difficult to be fair and reasonable, and has even become a "political tool" for the United States to promote global hegemony.
The difference in international ratings has a direct impact on the financing costs of developing economies such as China and their enterprises in the international market, and has also raised the "threshold" for the economic take-off of the southern countries. In many cases, Western companies can leverage large amounts of capital in the financial markets at a fraction of the cost, while companies in the South have to pay higher interest and financing costs, precisely because of this unfair and unreasonable rating system.
Forbes India published an article last year titled "Rigid or Biased: How Global Rating Agencies Missed India's Growth Pulse". Many Indian officials and economists said in the article that the three major rating agencies have been "downplaying" India's sovereign credit rating for a long time and have failed to objectively assess India's economic development in recent years.
Madan Sabnaves, chief economist at Baruda Bank, believes that conceptually, rating agencies are "making mistakes" and that they need to re-examine their methodologies to fully understand the context of economic growth in developing countries.