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Scott Kennedy, an Indiana University political scientist who has written about Chinese ratings agencies, said Guan has legitimate arguments but Dagong is too small and inexperienced to change the global system. "He seems like a guy with a chip on his shoulder who is very nationalistic," said Kennedy, who said he has met other Dagong managers but not Guan. "There is something legitimate and principled about his concern about dominant rating agencies, and that is worth thinking about," Kennedy said. "I just don't think he or Dagong is the one with the ability to challenge the ratings agencies and change the way financial markets deal with risk." The major agencies say they apply the same criteria to all economies. Their published criteria for deciding a sovereign credit rating make no mention of political systems and cite factors including respect for property rights, ability to fight corruption, consistency of government policy and the possibility of unrest. Moody's says high economic output per person is "the single best indicator of economic robustness" and ability to repay debts. Asked to respond to Guan's criticism, S&P said it uses "globally consistent" standards. It isn't clear the world needs a new system, despite criticism of the major agencies after the crisis, said Anastasia Kartasheva, an expert on risk management at Wharton School of Business. She said they bungled ratings on asset-backed securities but did well in the areas targeted by Dagong
-- sovereign and corporate debt. "It's not as if the Chinese rating agency is offering ratings in a class where the other agencies performed poorly," Kartasheva said. In its debut sovereign ratings in 2010, Dagong gave U.S. government debt a grade of AA, below its AA-plus for China and the super-safe AAA awarded by Moody's. At a news conference then, Guan said the Western ratings industry "provides the wrong credit-rating information." He pledged to "break the monopoly" of the major agencies. Later that year, Dagong cut the U.S. rating further to A-plus. Last year, Dagong attracted attention by being first to cut ratings for France, Spain and Austria ahead of similar reductions by S&P and Fitch. But its ambitions for a bigger presence abroad have suffered setbacks that highlight the political hurdles in China's government-dominated economy. It applied to operate in the United States but was rejected by the U.S. Securities and Exchange Commission in 2010 amid a dispute over Beijing's reluctance to allow American regulators to inspect Chinese accounting firms that work for companies with shares traded on U.S. exchanges. According to the SEC, Chinese regulators said that until the inspection dispute is resolved, they would not discuss issues such as whether Dagong would be allowed to comply with U.S. rules requiring it to divulge information about clients. Guan said he saw a different motive for the rejection: U.S. concern that Dagong might give American companies lower ratings and rattle investors. "China's rating market is open to the United States and its companies can enter our market, while the U.S. market is not open to Chinese rating agencies," he said. "This is a double standard." Dagong will face hurdles persuading investors it is making judgments independently in China's heavily regulated economy, where its customers are state companies, said Wharton's Kartasheva. Last year, Chinese commentators questioned Dagong's decision to award China's Ministry of Railways a AAA rating despite its debts of 2 trillion yuan ($300 billion). Dagong citing the ministry's support from the deep-pocketed government but critics questioned whether the agency was rigorous enough. Still, Dagong might find a profitable niche explaining China's borrowers to foreigners and global markets to Chinese investors, said Kartasheva. "They clearly could expand in Asian markets," she said. ___ Online:
http://www.dagongcredit.com/
[Associated
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