Quake Shocks Sichuan
Nation demonstrates progress in dealing with severe disaster
Current Issue
· Table of Contents
· Editor's Desk
· Previous Issues
· Subscribe to Mag
Subscribe Now >>
Expert's View
Market Watch
North American Report
Government Documents
Expat's Eye
Photo Gallery
Reader's Service
Learning with
'Beijing Review'
E-mail us
RSS Feeds
PDF Edition
Reader's Letters
Make Beijing Review your homepage
Hot Links

cheap eyeglasses
Market Avenue

Print Edition> Business
UPDATED: May 17, 2010 NO. 20 MAY 20, 2010
Crisis Focus: Challenging Credit Dominance

Europe's widening sovereign debt crisis has brought independent credit ratings to the forefront of the EU's agenda. To directly address the matter, the EU announced plans to set up a European credit-rating authority for sovereign debt ratings on April 30. This marked a milestone in the international credit history, and the beginning of changes to U.S.-dominated international credit ratings and the pattern of international politics and economics, said Sun Zhe, Director of the Center for U.S.-China Relations at Tsinghua University, in an interview with the Economic Information Daily. Edited excerpts follow:

The global financial crisis has verified that global credit stability has become the biggest unconventional security threat to each country.

In a world with highly developed credit systems, the one who controls credit resources enjoys capital dominance. Major owners of credit resources, such as the United States, the United Kingdom, Germany and France, are always the biggest debtor nations. They have amassed large quantities of credit resources through issuing sovereign bonds, attracting international capital at financial transaction centers and issuing international reserve currencies.

Although it's questionable whether some governments can pay their debts back, they keep the country running and influence international political and economic strategies with their debts. These countries are able to maintain high expenditures in hi-tech and military, thus reinforcing their leadership in these areas, and keep low interest rates to boost local investments and their financial sectors. With the right of issuing international reserve currencies, they maintain unrestrained fiscal deficits and current account deficits and avoid debts through depreciating their currencies. Controlling international credit resources also helped these countries cushion the impacts from the financial crisis and saved these economies from a hard landing—they wrote off large fiscal deficits, offered fiscal incentives and salvaged financial institutions largely with sovereign debts.

Long-term dominance of international credit ratings helped the United States influence international political and economic patterns.

Through this dominance, the United States was able to amass credit at the lowest costs with its affirmed AAA sovereign credit rating, create favorable situations for large debtor nations by downgrading ratings of creditor nations, safeguard the current dollar-dominated international monetary system and solidify the influence of its international economic and financial strategies among other countries.

Furthermore, a larger say in sovereign credit ratings allows the United States to manipulate diplomatic ties, upgrading ratings of countries that supports its policies or creating economic and financial turmoil in countries that do not.

China, as a major creditor nation, currently depends on U.S. credit rating agencies for ratings of its overseas investments. Despite its role as a growth engine for the global economic recovery and its strong credit position, China has long been rated A+ by three U.S. credit rating agencies, including Standard & Poor's, much lower than its real solvency. The downgrade raised the cost of financing for the country and made it more difficult for Chinese companies to seek overseas financing.

But the dominance of large international credit controllers in international politics and economics in the long run is unsustainable. Uncertainty looms over whether they can maintain their strength by relying on other countries' capacity to create wealth.

While EU countries compete with the United States for credit-rating dominance, China has been given the rare opportunity to win a stronger voice in this area. There may be difficulties as China's currency, the yuan, is still not an international reserve currency. But China should seek a larger say in sovereign credit ratings, for the sake of safeguarding its interests as a creditor nation and reforming unreasonable international financial orders.

Top Story
-Too Much Money?
-Special Coverage: Economic Shift Underway
-Quake Shocks Sichuan
-Special Coverage: 7.0-Magnitude Earthquake Hits Sichuan
-A New Crop of Farmers
Most Popular
About BEIJINGREVIEW | About beijingreview.com | Rss Feeds | Contact us | Advertising | Subscribe & Service | Make Beijing Review your homepage
Copyright Beijing Review All right reserved