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US rating must reflect creditor nations' view: Dagong

Leslie Shaffer | Writer for
Dagong: US ratings agencies are not reliable

The U.S. sovereign rating should be derived from the viewpoint of its creditors, said Guan Jianzhong, chairman of Dagong Global Credit Rating, the Chinese ratings agency which recently downgraded the U.S.

"In the past we were relying on the three U.S. ratings agencies to make bond buying decisions. But it's more and more obvious that they represent the United States, which is the debtor's interests," Guan said. "It's not reliable," he added.

"The gap between debt levels and fiscal revenue gets bigger and bigger," Guan said. "The world sees this. But credit agencies of the debtor country choose to ignore it or don't make assessments based on these facts."

(Read more: US crisis over, will China re-think Treasury holdings?)

Dagong, one of China's top four ratings agencies, cut its rating on U.S. sovereign debt to "A-" from "A" last week, maintaining a negative outlook. Dagong has a similar ratings scale to S&P and Fitch, with "AAA" marking the highest rating.

China is the biggest foreign holder of U.S. government debt. At the end of July, China held $1.28 trillion in Treasurys, accounting for roughly 22.8 percent of all foreign holdings of U.S. government debt.

"The world now cares more about ratings from creditor nations. They are more truthful and reliable, and they represent creditors' interests to uncover credit risks," he said. "It should also become a reference or guidance for big creditor nations like China," he said.

(Read more: Funds' shift away from US isn't just about the debt ceiling)

Dagong ratings chart

The resolution, albeit temporary, of the U.S. debt ceiling debate won't affect Dagong's view on the U.S.'s creditworthiness. After a 16-day government shutdown, a compromise deal was reached last week to reopen the government by approving funding until Jan. 15 and extending the debt ceiling until Feb. 7.

"This won't change the substance of the matter, which is the country's deteriorating debt repayment ability. The U.S. doesn't rely on its fiscal income or the ability to generate wealth to repay its debt," he said. "Instead, they borrow new debt to repay old debt. This is a very vulnerable relationship, which can put the government on edge of a debt crisis at any time," he added. "We remain bearish."

Dagong isn't alone in expressing concern about U.S. creditworthiness.

"At some level, the actions of the U.S. Congress since 2011 are likely to make foreign-exchange reserve managers look more at spreading their exposure more widely, including to emerging currencies," said Greg Gibbs, senior foreign-exchange strategist at RBS, in a note titled "Triple-A investors deserve better than this."

Gibbs noted foreign-exchange reserve managers reported to the International Monetary Fund that they hold around 62 percent of their reserves in U.S. dollars.

Some analysts have said it would be easier to give Dagong's view on the U.S. more credibility if it didn't also rate some of China's non-performing bankrupt local government financing vehicles at AAA.

(Read more: US credibility continues to erode: Gundlach)

But earlier this year Dagong also downgraded three Chinese local government-backed bonds.

"No one knows the size or quality of the local government debt; nor do people know about the local governments' debt repayment capability," Guan said." It's hard for us to tell the seriousness of China's local government debt issue. As a ratings agency, we don't have access to reliable data."

— CNBC.Com's Leslie Shaffer; Follow her on Twitter