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Friday, December 2, 2011

Should Sovereign Credit Rating Be Outsourced to China? Not So Fast ...



China's Dagong Global Credit Rating Co. recently announced plans to create a so-called super-sovereign credit rating firm. In part, this is because the Big Three U.S. ratings agencies -- Moody's, Standard & Poor's and Fitch -- are believed to be too closely tied to Wall Street. Will Dagong succeed? In this opinion piece, Anastasia V. Kartasheva, a professor of business and public policy at Wharton, argues that Dagong will face an uphill task in establishing credibility. She also explains that the downgrade of a country's credit rating can have major consequences throughout the economy.

While America's leaders debate -- and sometimes squabble over -- how to create jobs and whether outsourcing work to emerging markets helps or harms the economic recovery, another industry is at risk of moving to China: credit rating. That, at least, is the intent of China's Dagong Global Credit Rating Co.

The Beijing-based company, founded in 1994, has come up with a plan to create a so-called super-sovereign rating firm in partnership with rating organizations in Europe, the U.S. and the BRICS nations (Brazil, Russia, India, China and South Africa). "The idea is good and desirable [because] the Big Three ratings agencies [Standard & Poor's, Moody's Investor Service and Fitch Ratings] are believed to represent the interests of Wall Street," noted Pi Kyung Won, planning department general manager at NICE, a unit of South Korea's National Information and Credit Evaluation Holdings, in an interview with Bloomberg in September, soon after Dagong announced its intentions.

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