Why does U.S. deny entry of Chinese credit rating agency?

09/27/2010 Source: Xinhua

While taking aggressive steps to acquire China’s domestic credit rating agencies, the United States keeps a tight “fence” against those trying to foray into its own market.

The U.S. Securities and Exchange Commission (SEC) on Thursday denied a bid by China’s largest credit rating firm to become an officially recognized statistical rating organization in the United States.

By blocking the Chinese rating agency, the Dagong Global Credit Rating Co. Ltd., from entering the international credit rating market, the United States aims to thwart China’s efforts to have a say in the international capital market, Chinese analysts and observers said.

The U.S. government’s decision may not be so surprising as the SEC had in April this year rejected the application of the Dagong Global Credit Rating Co. Ltd., which is currently the only one of China’s four major credit rating agencies that has not been controlled by foreign capital.

“The United States rejected Dagong’s application out of fears that its dominance in credit rating could be challenged,” said Mei Xinyu, an expert with the Research Institute of International Trade and Cooperation of China’s Ministry of Commerce.

“Quite obviously, keeping an absolute dominance in credit rating brings the United States substantial benefits,” Mei said.

Though Washington always brands itself as an advocate for such principles as free trade, it will not hesitate to sacrifice those principles for economic gains, added the expert.

The SEC said it rejected Dagong’s application for registration as a nationally recognized rating organization because it could not ensure the Beijing-based company would comply with U.S. reporting rules, a pretext suggesting that it cannot perform cross-border oversight and regulation.

Dagong contended that such alleged rules have never been used as a standard for the SEC to approve registration of rating agencies in the United States.

“It is a barrier specifically set for Dagong, which is obviously discriminatory against China and the Chinese rating agency,” it said.

Chinese analysts believed that the SEC’s denial of Dagong’s application indicates its intention to protect the monopolistic status of the “Big Three” Western rating agencies – Moody’s, Standard & Poors and Fitch, which have the make-or-break power over countries by upgrading or downgrading their bonds.

“The United State has the world’s biggest capital market…To be registered as the U.S. Nationally Recognized Statistical Rating Organizations (NRSRO) means obtaining the status of an international credit rating agency,” said Jiang Yong, director of the Center for Economic Security Studies under the China Institutes of Contemporary International Relations.

Therefore, foreign credit raters have long been cautiously protected by the United States, he said.

According to Jiang, so far, only 10 of some 200 credit rating organizations around the world have been registered as an NRSRO, among which seven are U.S. domestic companies, two Japanese agencies and one Canadian rater.

However, the latter three have never actually operated businesses after entering the U.S. market, Jiang said.

“The United States keeps its ‘fence’ even tighter against foreign credit rating agencies, especially after the outbreak of the global financial crisis, as the world has seen an increasing significance of credit rating in ensuring and protecting a nation’s financial stability and core interests,” said Jiang.

On the other hand however, the Big Three, two of which are now America-funded, are now penetrating deeper and deeper into the Chinese market through large scale stock acquisition, Jiang said.

“Over the recent three years, the ‘Big Three’ ratings agencies have penetrated very deeply into China’s domestic credit raters, enterprises, and even the government bodies,” he said.

“Through such means as buyout, they’ve built a massive database, the scale of which is far bigger than that of the government,” said Jiang, who himself was shocked by the fact.

The expert warned that the Big Three set rating standards that serve the interests of their own countries, posing a serious threat to China’s financial sovereignty and national economic security.

“Credit rating has already become a tool of the United States to strengthen its economic and political supremacy and contain the development of China,” said Wu Hong, who is from China’s Office of the Central Leading Group on Financial and Economic Affairs.

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