US debt crisis urges international credit rating reform

People's Daily, August 15, 2011

The US debt crisis has given all countries a new understanding of American credit. After Dagong Global Credit Rating Company lowered the U.S. credit rating, Standard & Poor's followed suit, lowering it from AAA. Such news has drawn a strong response worldwide, which indicates the apparent special influence of credit ratings on world economic safety.

The contradiction between capitalist production and onsumption promotes a worldwide credit rating revolution. To meet the demand of capital expansion on consumption, credit is integrated into the whole process of social production.

The credit relationship constitutes the economic basis of modern society and influences the economic and social activities of the human beings. The socialization and globalization of credit relations between creditor and debtor as well as the credit system linking the entire world are the results of the credit revolution. This is the reason why the international credit relationship is related to global macroeconomic trends. In the global credit chain, the debt crisis is the biggest as well as the weakest part of credit relations.

The U.S. debt default risk is closely connected with the safety of creditors' assets. Once debt default occurs, the credit relationship between the U.S. government and its creditors will be broken. The global credit relationship was established around the United States. Since the States is the largest debtor country of the world, the impact of its credit risk on the global economy is obvious.

The right of rating heavily affects the global economy. Investors are willing to lend money to the United States, because the Standard and Poor's, Moody's Corporation and Fitch Ratings told them the rating of the Untied States was AAA and the U.S. government would not fail to pay its debt. However, this rating ignored the fact that the U.S. government has been unable to make ends meet for a long time, is heavily dependent on borrowing money and keeps breaking upper limits of its debt.

The rating organizations sent wrong signal to the world and ultimately led the United States to the verge of crisis. The three rating organizations have covered the U.S. credit risk using their speaking rights for a long period of time, and it is an inevitable result because the fundamental principles of debtor-creditor relationship have been broken, and creditor countries have lost their say in the rating.

Human society has come into a development stage that takes credit relations as the economic foundation, and the right to have a say in the rating is connected with the safe development of human society. The reason why developed economies with heavy debts can still control the global macroeconomic development trend is that they still have a voice in international ratings. Countries of the world are learning lessons from the U.S. debt crisis. In addition to China's rating organization that just started, the European Union and Russia are also planning to establish their own rating organizations. The monopoly of U.S. rating organizations is forcing other countries to reform the international rating system.

At present, China and other creditor nations do not have enough power in the international credit rating system and are thus unable to lead the healthy development of the world economy. Creditor countries have made great contributions to the smooth running of the international credit rating system and have suffered certain damage from this system.

As the world’s second largest economy and largest creditor country, China has a profound impact on global economy development. China needs a safe and orderly international macroeconomic environment, and the global economic recovery in turn needs the driving force of Chinese investments and consumption.

In order to ensure the sustainable development of international credit relations and the healthy development of the world economy, the existing international credit rating system, dominated by debtor countries, must be reformed to accurately reflect the economic situation and credit rating of a country.

By the Chairman and CEO of Dagong Global Credit Rating Company.