Friday, 23 July 2010

How to score an own goal

China’s bosses sometimes find it difficult to understand the world; especially as seen through their own lenses, which are admittedly very thick. What can you make out of the following news report – “The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. “China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

China likes to develop everything by itself. It doesn’t like Google; it has Baidu instead. Doesn’t like Facebook, YouTube, Blogger, …….., I can go on and on. Every one of them has a local equivalent. It’s not just in IT. Take Credit rating. It wants its own credit rating agency. Enter Dagong Global Credit Rating. It has about a quarter of China’s own fledgling credit rating market, and of course zilch of the global market. It started life with a “technology agreement” with Moody’s back in the mid 90s and having learnt the ropes, kicked them out – that’s par for the course for business here.

Back to the delicious irony of Mr Guan’s comments. Western credit rating agencies are politicised and in the same sentence he argues for China to have a say in how credit risks of states are judged !! To an outsider, it would appear that you could accuse Moody’s , S&P and Fitch of lots of faults, but being “politicised” is the last thing that comes to my mind. But from behind the myopic lenses from inside Beijing, it is understandable that it looks that way, because everything else here is that way.

He then goes on to criticise the practice of “rating shopping” wherein companies shop among the Big 3 to see who would give the best rating and give the business to them. Yes, there was much of that in the boom time, but Mr Guan, this is called competition. It is anyday better to have rating shopping than to have a single agency that would take its orders from the government.

And then, as is the wont here, Dagong published its own ratings for soverign countries. No prizes for guessing which country comes above the United States, Britain, France, Japan …… Another delicious comment from the delightful Mr Guan “US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings “ !

The official news agency , Xinhua, immediately published an editorial wildly praising Dagong. It lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”. No doubt Dagong’s report was cleared with the powers that be and his comments vetted – how is it that the possibility that it might just be a tad too funny to claim politicisation of western credit agencies in the same breath escaped these mandarins ?

And Dagong’s aim is to break into the world credit rating market. Fat chance.

Sometimes, they just don’t get it.


Vishal said...

Very very interesting read!

The key consideration for a good credit agency is to have the objectivity and transparency in place while awarding rating to any company. Ideally, his (Dagong) say should be based on similar grounds and assumptions that others use. And why only politisation? There could be several other factors which may contribute to the inaccurate rating. It looks like the case of excessive adulation of one's competencies to me.

zeno said...

Oh My God, India should not trail behind, to establish its supremacy in the south east asia, and that too with Harvard, Oxford educated economic stalwarts, India too should start its own credit rating agency. GoM should immediately start work on this.
Few words for the indian credit rating agency!
If giving good credit ratings will help the cause of bilateral talks with pakistan, so be it.we should give high credit ratings to US as Indo-US relationships are very important at the same time lets not derail indo soviet relationships. Giving high credit ratings to Srilanka may create protests in tamilnadu!

Deepa said...

A very informative post indeed, but I just fell off my chair laughing on zeno's comment!

Now that I am back on my chair, a thought just struck me with that knock on my head. To have a credit rating agency, one has to have a credibility itself too. If China took some effort in opening up and getting some objective outlook, everyone would gladly accept a credit rating agency coming from the eastern side of the globe.

But then whats a movie without a disillusioned villain?! :)

Ramesh said...

@Vishal - These are all the products of misguided nationalism.

@Zeno - Brilliant. Simply perfect.

@Deepa - Opening up implies an ability to accept criticism. That's simply a quality China does not even have an ounce of.

Sandhya Sriram said...

As long as their economy is growing, China can get away with these fat lenses, myopic misguided nationalism.

they are now going through the growth phase of the law of DMU curve. when they touch the peak (saturation phase), that is when they will realise the importance of being part of the rest of the world

they will eventually evolve - maybe the hard way.

gils said...

thala...pinreenga thala..thani rating agency..thani google..thani facebook...hmm...vitta china va thani continenta aaakanumnu sonaalum solvanga..

J said...

My initial reaction was that this read like a Sunday post - quite funny :) but hey I don't blame the Chinese. I don't think the US rating agencies have much credibility left and I am not sure they are totally immune from political pressure when it comes to sovereign ratings. Well I am skeptical of the big rating agencies right now. But this chinese response at least makes for a good laugh when the financial sector has been nothing but a source of frustration.

Priya Ganesh said...

To me the only thing different about the Chinese credit rating agnecies is that they openly say that they are not open to the openness shown by others; while others claim to be open but in reality are clouded anyway!

Ramesh said...

@Sandhya - Tough ; because througout history China has tended to isolationism. Maybe hardwired.

@Gils - One thing they cannot do; Make a Tamil movie starring Vijay, Asin and Gils !! (only three relevant names I know)

@J - Credibility is all very relative. It would take me a lot to attribute credibility to Dagong.

@Priya - That's certainly one way of looking at it !

Ravi Rajagopalan said...

No great surprise to me. I have some personal experience of this phenomenon in the People's Republic. Narrowminded parochialism clothed as patriotism. Cue the immortal comment by Samuel Johnson.

Instead I ask all your readers to go to YouTube and look at the highlights of Day 1 of the Headingley Test between Pakistan and Australia. A masterclass in fast bowling. Thrilling to the extreme.

Ramesh said...

@Ravi - Well, if the good Doctor would substitute Patriotism with Jingoism, then 'll buy his quote !!

Had no clue that the Headingley Test was so good. I thought both Pakistan and Australian test teams are slipping, but obviously not.

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