China Rating Agency Downgrades US Debt
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Supervising Digital Editor, CNBC Asia
China's Dagong Global Credit Rating has cut its credit rating on U.S. sovereign debt to A from A+, Chen Jialin, general manager of the international department at the firm confirmed to CNBC on Wednesday.
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According to Xinhua, Dagong's decision was based on "the fact that the U.S. national debt growth had outpaced economic growth and fiscal revenue, hurting the country's debt-paying ability."
China's central bank, on the other hand, welcomed the U.S. debt deal on Wednesday though official media have issued several scathing commentaries in recent days accusing the U.S. of not doing enough to cut its debt. China is the largest holder of U.S. Treasurys and has foreign exchange reserves of $3.2 trillion.
Dagong's ratings cut though is unlikely to have any major implications in the bond market, given that most investors rely on ratings from the big three firms - Moody's, Standard & Poor's and Fitch.
Franklin Templeton, one of the world's biggest fixed income managers, also said Dagong's ratings lacked transparency.
"The challenge with that rating agency out of China is that there's not a lot of transparency and so it's a little difficult to take too much out of that," Michael Hasenstab, senior vice president and portfolio manager of the international bond department at the firm told CNBC on Wednesday.
Hasenstab, however, said Dagong's action raised an important issue that politicians had been unable to deal decisively with the debt issue and the bruising political fight had hurt confidence in the U.S.
"(The) process, I think, has unnerved the markets and unnerved the world," he said.
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