Tainted objectivity of credit ratings

Moody's and Standard & Poor's recently lowered their ratings on the outlook for China's government credit from "stable" to "negative", citing China's slower-than-expected efforts to advance economic rebalancing, a deteriorating leverage rate for both the government and enterprises, arduous reform challenges, and uncertainties involving its capability to carry out the needed reforms.

Despite the problems, there is not enough convincing evidence to justify their downgrading of China's credit rating. The market only gave a tepid response, and the renminbi's value against the US dollar even saw a rise following their moves. This is not because of excessive market tolerance to China's economic performance, but because of the two agencies' self-evident overestimation of China's economic difficulties and their underrating of China's capability and resolve to push forward reforms and deal with possible risks.

There is no need to be excessively concerned over China's economic restructuring, the debts in its real economic sector, the ongoing reforms of its State-owned enterprises and possible risks in its financial market. International rating agencies should first make an overall and thorough evaluation of China's economic and social achievements and the tangible progress it has made in structural reform in order to reach an objective and fair credit assessment of the world's second-largest economy.

Admittedly, as the two rating agencies still carry global reputations, the rating indexes and standards established by Moody's and Standard & Poor's can influence the capital market. But that does not mean their rating results are free from any faults or the influence of ideologies and values.

In fact, the ratings of the two agencies have often been denounced by other countries and enterprises as being non-objective in the past. The often-caustic attitude of the two agencies toward China, such as their failure to extend China a high sovereign credit rating even during its high-speed economic growth, has added to people's skepticism over the objectivity of their assessments of China.