Business Maverick

Business Maverick

China’s top rating firm downgrades US in echo of global rivalry

China’s top rating firm downgrades US in echo of global rivalry
Chinese national flags fly over Tiananmen Square in Beijing, China, on Sunday, March 12, 2023. (Photo: Qilai Shen/Bloomberg)

While the world’s major credit-rating agencies have held off downgrading the US as Washington barrels toward the fiscal cliff, China’s top rating firm has been the first to pull the trigger.

China Chengxin International Credit Rating Co., a joint venture with Moody’s Investors Service, lowered its rating by one notch to AA+ from AAA and placed the US on review for a further downgrade, according to a statement on Thursday. 

“Even if a consensus is reached, the brinkmanship would pose uncertainty to the US government’s policy path and dampen economic confidence, which could trigger further volatility in the US politics and economy,” said the agency, known as CCXI, adding its baseline scenario is for a debt-ceiling deal to be reached.

In contrast, Fitch Ratings Inc. and DBRS Morningstar have so far only placed their US ratings on watch for a potential downgrade, while Moody’s said a mid-June payment of interest on Treasuries will be critical for maintaining its top AAA grade.

Republican and White House negotiators are moving closer to an agreement to raise the debt limit and cap federal spending for two years, according to people familiar with the matter, as time grows short to avert a catastrophic US default.

While there was no market reaction to the CCXI decision and the firm doesn’t speak for the government of President Xi Jinping, the US downgrade by a Chinese firm comes amid increasing rivalry and recriminations.

‘Selfish interests’

The global competition between Washington and Beijing in recent years has led to frequent confrontations, particularly over the status and security of Taiwan and its crucial semiconductor sector, and China’s diplomatic support for Russia after its invasion of Ukraine. 

Both sides have begun publicly accusing the other of “economic coercion”, while Beijing has used the debt-ceiling fight to criticise America’s stewardship of global financial stability. 

“We hope that the US will choose responsible fiscal and monetary policies and not spill its risks to the rest of the world, still less ripping the world off to protect its selfish interests,” Mao Ning, spokeswoman for China’s Ministry of Foreign Affairs, said at a briefing in Beijing this week.

Beijing has been seeking to carve out a bigger piece of the financial system and reduce dependence on the dollar as the US uses sanctions more aggressively, particularly since Russia’s invasion of Ukraine. 

China, meanwhile, faces its own debt dangers, which investors fear will drag on the world’s second-largest economy for years. Goldman Sachs Group Inc. estimates the nation’s total government debt is about $23 trillion, including the hidden borrowing of thousands of financing companies set up by provinces and cities.

“The US government is faced with certain risks that may lead to deterioration of its creditworthiness,” CCXI said on Thursday. It said the Fed’s policy stance amid the recent banking crisis “faces multiple challenges, which may exacerbate economic volatility”.

CCXI is a joint venture between Beijing Zhixiang Information Management Consulting Co. and Moody’s, according to the website of a Hong Kong unit.

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