Alternative ratings

By Qi Kai
0 Comment(s)Print E-mail Beijing Review, September 3, 2017
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International credit-rating agencies are products of economic globalization, especially the liberalization and integration of financial and investment activities. As borrowers and bond issuers could be geographically remote from one another, lenders were unable to assess borrowers' creditworthiness or possibility of default. However, they needed to know the likelihood of borrowers paying back debts so that they could limit the risks of their investments. Against this backdrop, influential international rating agencies emerged to assign credit ratings to debt issuers.

Chinese and Russian technicians inspect quality of glass products at a plant of the Fuyao Group in Kaluga, Russia, on July 18. Russia is one of the major overseas manufacturing bases of this big Chinese glass-product maker. [Photo/Xinhua]

Since 1860, when Henry Poor started the rating agency Standard & Poor's, the business of rating major companies and governments has become gradually dominated by three big agencies—Standard & Poor's, Moody's and Fitch, which still remain the industry standard-bearers and take up 95 percent of the global rating business.

In 1975, U.S. financial watchdog, the Securities and Exchange Commission, acknowledged these three as nationally recognized statistical rating organizations. As an economic superpower that had material influence on international financial markets, the United States, in effect, reinforced the monopoly of these agencies by granting such an endorsement.

Discontentment arises

This history shows that the currently dominant rating agencies have Western attributes. They represent the unchallengeable impact Western nations exert on the global economy. Such a condition results in a biased approach when the agencies assign ratings to bond issuers from emerging nations like BRICS members—Brazil, Russia, India, China and South Africa.

Over the past decades, emerging economies have impressed the world with rapid economic progress. With their GDP shares declining from a global perspective, Western countries' endorsement has become less persuasive to emerging nations. While these rating agencies spare no efforts to maintain their monopoly, BRICS nations are looking for favorable rating assessments to scale up economic growth. Conflicts between them have,therefore, become unavoidable.

This can be seen from the recent moves to downgrade the credit ratings of BRICS nations. Fitch lowered Brazil's sovereign credit rating to BB+ from BBB- in December 2015, and further downgraded it in May 2016. Since 2016, only Fitch among the big three has assigned an investment-grade rating to Russia. In April, Standard & Poor's and Fitch successively labeled South Africa's state debt as junk following the nation's domestic political reshuffle. Even China's stable outlook was changed to negative by Moody's and Standard & Poor's during the past year. India's ranking was even worse, resulting in its domestic media widely criticizing the agencies for bias. In fact, all five members of BRICS have questioned the way in which the three agencies operate with double standard and entrenched political bias.

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