A Chinese outfit called Dagong plainly has ambitions to join the likes of Moody's and Standard and Poor's among the elite of world rating agencies, as its full corporate name, Dagong Global Credit Rating Co., attests.
But Dagong's application to become a Nationally Recognized Statistical Rating Organization in the U.S. was turned down by the Securities and Exchange Commission. This is no trifling matter in the bond-rating universe.
Only ratings from NRSROs are allowed to be used by banks, insurers and other financial entities to meet certain U.S. regulatory requirements. And some pension funds and other major bond investors insist that issuers provide ratings from NRSROs. Foreign debt raters that carry the valuable designation include Canada's DBRS and two based in Japan.
But not Dagong. "China, as the biggest creditor of the United States, [should] share the discourse power of credit rating in the US market," Dagong said in response.
Now Dagong has downgraded U.S. government debt to the equivalent of single-A plus from double-A, with a negative outlook. As the reason, Dagong cites the Fed's latest round of quantative easing and a "deteriorating debt repayment capability and drastic decline of the government's intention of debt repayment."
But we can't help thinking there's a little bit of payback involved here. The double-A rating was already below the rock-solid triple-A level other major agencies still assign to U.S. Treasuries.
It almost goes without saying that Danong has government connections. The firm was founded 16 years ago with the approval of the central bank and the old state Economic and Trade Commission.
It's enough to make us wonder how nervous Beijing is getting over its role as the lead creditor of a government whose massive debt is spiralling ever upward.