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To what effect Fitch's credit ratings are playing?

09-14-2011 15:47 BJT

By Li Hongmei

BEIJING, Sept. 14 (Xinhuanet) -- Alongside Europe and Japan, China, the largest creditor of the world's sole superpower the United States, is also in the ratings firing line against the backdrop of global financial crisis.

Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, one of the world's top three credit agencies, stated Sept. 8 that China's local currency debt rating could be downgraded over the next 12 to 24 months.

Not few observers believe that by blacklisting others, in particular, China, the rating organization is intended to "gild" the sluggish U.S. market at a time when the global economy has been nosing down, and the U.S. seems to have outlived its good old days.

With more than 14 million out of work, all Americans fear a double-dip recession and a government starved of means and willingness to lift a finger to help.

Over the year, the Fitch has hit out all around wielding its edge tool of downgrade weighing down the European countries like Spain, Portugal, Belgium.

It is widely understood Fitch stands by U.S. as it stated categorically "dollar's special status gives America strength on debt." Moreover, it also insisted on the AAA rating it gives even though others, after repeated and crossover examinations, downgraded the U.S. government's debt by one notch.

Fitch is wielding that edge tool on China. For this issue, China's media have roundly blasting its "debt addiction" and "short sighted" political wrangling and calling for a new stable global reserve currency.

A commentary by Xinhua News Agency said China, the largest holder of U.S. Treasuries, has "every right" to demand Washington address its structural debt and safeguard Chinese dollar assets.

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," Xinhua wrote.

Why the Fitch shifts its focus on China this time is complicated, but, if simply put, this indicates China's influence has been visibly growing over the world's economy. In the bygone days, when China's economy played a belittled role on the world chessboard, seldom would people cast their eyes on the weak giant.

Today, China has grown up to be the world's second largest economy with its robust growth, and its currency gets increasingly strong and vocal. Renminbi has already been taken as "international currency" in the region.

Analysts suggest what happens now seems in departure from what people have experienced ever before, in that people then were able to predict when and where the next recovery period would start, thus rebuilding confidence in grinding on. This time, however, no one can tell when things could look up, and therefore void of hope and confidence.

A fair, objective and reasonable rating system can warn if credit risks and prevent the international credit crisis.

Truth be told, China is surely not savior-like but a market with risks, Fitch's downgrade gives a timely warning to the Chinese banks to settle the problems of their own. The alarm in this sense sounds positive to China, prompting it to fortify the risk management of bank sector and step up supervision over local investment.

Be that as it may, overstating risks of the Chinese market is not in line with facts. Also, further credit downgrades would very likely undermine the world economic recovery and trigger fresh rounds of financial turmoil.

Earlier, the United States narrowly avoided a default after lawmakers from across the political divide came together to hammer out a deal that would raise the country's borrowing authority after weeks of rancorous partisan battles.

In the aftermath of financial crisis, the U.S. economy is undermined in vitality. The occurrence of European debt crisis looms as a chance for U.S. to regain its strength. At least, the capital flowing out of the U.S. to the European market starts its backflow and, again, sees a ready purchase of the U.S. property and treasury.

Fitch's warning to downgrade China seems intending to engulf emerging economies with galloping growth into its blacklist. Aside from how much we can invest trust in the rating agency entirely defined by the U.S. capital and its double-standards on grading Anglosphere elites and developing economies, the Fitch's downgrade is too evident to be overlooked -- it might as well say bluntly the U.S. was, is and will always be the top priority for international investment.

The Chinese language has a vivid saying to describe the situation---- Besiege Wei to Rescue Zhao, meaning when the enemy is too strong and active to attack directly, then attack something he holds dear. Isn't it that the U.S. credit ratings are playing just to the effect?

Editor:Wang Xiaomei |Source: Xinhua

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