Guide to the Global Credit Risk
Grasp the Leading voice in International Rating

On the morning of July 11, 2010, Dagong Global Credit Rating Co., Ltd., a professional rating agency of China, released its sovereign credit risk reports of 2010 and for the first time the sovereign credit risk ratings for 50 Countries in Beijing. As a non-western rating agency, this is not only the first one in China, but also the first one in the world, that releases information on sovereign credit risks.

The on-going financial crisis which originated from the U.S. and the latest Greek debt crisis, have fully reviewed the shortcomings and defects of existing sovereign credit rating agencies. In this context, the international community has reached consensus to reform the existing international credit rating system. Chinese President Hu Jintao has lately stressed at the fourth G20 summit in Toronto that : "we must develop an objective, fair, reasonable and uniformed method and standard for sovereign credit rating, so that the rating result can precisely reflect a country's economic situation as well as its level of credit risk."

In this background, Dagong has recently assigned sovereign ratings for 50 countries for the first time, the geographic locations of which are in different continents around the world. Among them ,20 countries in Europe, 17 countries in Asia, 2 in North America, 6 in South America, 3 in African and 2 in Oceania. The total GDP of these 50 countries accounted for 90% of that of the whole world, and nearly all the characteristics of typical regional credit risk are involved. It reveals the distribution of credit risks around the world as well as and their changing trend. Among the 50 countries, the local currency sovereign credit risk for such countries as Norway, Australia, Denmark, Luxembourg, Switzerland, Singapore, New Zealand were assigned "AAA" ratings; China, Canada, the Netherlands, Germany were assigned "AA +"s, the United States and Saudi Arabia "AA"s; France , the United Kingdom, Korea and Japan got "AA-"s. The countries that were assigned local currency sovereign credit rating of "A-" level include Belgium, Chile, Spain, South Africa, Malaysia, Estonia, Russia, Poland, Israel, Italy, Portugal and Brazil.

A significant difference between Dagong and the three international rating agencies, i.e. Moody's, S&P and Fitch in terms of their rating results is that Dagong emphasizes more on the country's capability to pay its debt. If you analyze the rating grades (regardless the difference of + or - symbol), the three international rating agencies do not have much differences in their ratings to a particular country. However, Dagong's ratings are quite different from theirs. Among these 50 countries, 27 countries received obviously different ratings from Dagong. Those countries which have received higher ratings are mainly the new emerging countries which have political stability and good economic performance. Those countries which have received lower ratings are many developed countries which have shown economic growth and are heavily burdened with increasing debt. These differences are caused by different rating concept and method which have been used by Dagong. More importantly, during the rating process, Dagong has insisted to extend a fair rating which should not be affected by the ideology in the country.

In the speech entitled "provide just credit rating information to the world", Guan Jianzhong, the Chairman and Chief Executive of Dagong, said: "intrinsically, the reason of the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor's repayment ability and provide the wrong credit rating information to the world". He pointed out that in the context of credit globalization; the current international credit rating system is not able to assume the public responsibility of providing credit risk of debtor countries to the world. The fact of Dagong releasing 50 countries' credit ratings relying on its new country credit rating standard is demonstrating that an emerging rating agency has begun to play an important role in international credit rating filed and it will make significant contribution in reforming the unjust international rating system.

What is Dagong's new country credit rating standard? Guan Jianzhong said. The core elements of this standard are the "national governance capacity, economic strength, financial strength, fiscal strength and foreign exchange strength." the core concept of Dagong sovereign rating standard is: the wealth creating capacity is the fundamental for a country to support its national borrowing capability and the source of debt payment. Based on the general principles of the formation of credit-debt relations, Dagong decides on the final credit rating of each country by studying the interrelationship of related factors and considering the country-specific circumstances through a complex analysis process.

As elaborated, in its rating process, Dagong stresses on five principles as follows:

First, a systemic evaluation of the country's comprehensive institutional strength and its fiscal status;

Second, the fiscal status is the decisive factor for the government to pay its debt;

Third, the government capacity to increase its revenue is the fundamental factor to the country to pay its debt while its capacity to borrow is not the guarantee factor;

Forth, the comprehensive institutional strength has a prominent role in protecting the stability of the country's credit when the country is facing the more frequent external shocks;

Fifth, make sure that the statistics and information are reliable, timely and consistent.

At the conference of Dagong Sovereign Credit Risk Report in 2010 and its Reports of 50 sovereign credit ratings, Executive Vice President Zheng Xinli from the China International Economic and Exchange Center, Finance Secretary Xu Lin, Director-general and Kong Linglong, Director-general from the National Development and Reform Commission, the senior officials from China Securities Regulatory Commission, Chief Representative of Asian Development Bank in Beijing, Jiang Yong, Director-general of Economic Security Research Centre, China Institute of Contemporary International Relations Research Center, Chief Economist Wang Jianye from Export-Import Bank of China, Professor Wu Jingmei from Institute of Finance and Economics, Renmin University of China, and many other experts and scholars make speeches.

Experts are of the view that China's independently sovereign credit rating agency committed to win speaking vice in international rating field is important for china to maintain its financial sovereignty and promoting the reconstruction of the international credit rating system. On one hand, by distributing objective and impartial sovereign credit risk information to the world, Dagong will dedicate itself in changing the imbalanced utilization of current international credit resources, breaking the monopoly of three international agencies of credit rating, and promoting global economic development in a sustainable and balanced manner. On the other hand, by supporting the country to win the right in international financial business and setting the related rules and especially, providing services to win the right for financial pricing in the process of RMB internationalization, Dagong will make its best efforts.

While experts expressed support and appreciations to Dagong for its releasing 50 sovereign credit ratings, they also called for relevant government agencies to pay close attention to making use of the Dagong Rating Reports which are the achievements under the new country credit rating standard. They also expect national credit rating agency can obtain the right in international rating field and make greater contribution to the reconstruction of international rating system.

Dagong Global Credit Rating Co., LTD is a well known rating agencies in China and its sovereign credit rating started in 2007. Beginning from the study of the nature and inherent law of global credit economy, Dagong has continuously probed into the various basic elements that affect sovereign credit risks and the intrinsic link between them, and make a groundbreaking study on national credit rating standards. Dagong released our country's first national credit rating method with independent intellectual property rights in May 2009 and developed a full set of documents regarding new sovereign credit rating standard. Dagong's sovereign credit rating standard is quite different from those of the three major international rating agencies in the rating standpoint, thinking mode, theoretical system and analytical methods. Its standard fair is more scientific and objective. Its outstanding feature is the technology innovation in 10 aspects of the national credit rating, with the objective to correct the defects of the existing rating standards in considering the characteristics of the sovereign credit risks. Dagong's method can reveal the sovereign credit risks more objectively and accurately.

It is said that the number of the countries that Dagong gives credit rating will be over 100 every year, which are all based on this new sovereign credit rating standards. Guan Jianzhong said: "I sincerely hope that the sovereign credit risk research results of Dagong can illuminate the direction for the people who are looking for business opportunities in the vast risk sea, and usher the human beings in the credit era in a new spring".