China’s Dagong Global Credit Rating Co earlier this week released what it described as the first ever assessment of sovereign credit risks by a non-Western ratings agency. Dagong’s report covers 50 countries (20 in Europe, 17 in Asia, 2 in North America, 6 in South America, 3 in Africa, and 2 in Oceania) comprising 90% of the world’s economy. The report has drawn considerable attention in the international business media, not least because the agency has ‘downgraded’ – or more accurately, rated at a lower level – many Western countries in relation to their position according to the world’s three most prominent ratings agencies, Moody’s, Standard & Poor’s, and Fitch.

Most notably, Dagong rates 18 countries lower than the international agencies, and these are Canada, Netherlands, Germany, USA, UK, France, Belgium, Spain, Israel, Italy, UAE, Thailand, Mexico, Romania, Iceland, Greece, Philippines, and Ecuador.

As for countries it rates higher than the main agencies, these are China, Saudi Arabia, Russia, Brazil, India, Indonesia, Venezuela, Nigeria, and Argentina. Geopolitically-minded readers will immediately notice that most of the above are non-Western states that Beijing is seeking to cultivate as allies to counterbalance the power of the West or are key providers of commodities for China’s rapid growth.

This raises questions about the whether Dagong is ideologically motivated or biased in some way, and whether it is reliable in its assessment. (The rest of the countries it rates are in line with the main agencies.)

The Real Story Is An Alternative Discourse

My take on Dagong’s motivations and reliability is that it doesn’t actually matter that much. What I mean is that the big three credit ratings agencies have been severely discredited by the global financial crisis, and they are typically way behind the curve. Therefore, Dagong won’t necessarily do a worse job, and there is certainly room for a new ratings player (for that matter, Business Monitor International publishes its own sovereign risk ratings every quarter, available to read on Business Monitor Online and in our weekly Emerging Markets Monitor magazine).

Dagong is certainly right that most Western countries face tremendous fiscal risks, and these are likely to remain considerable due to aging populations. As for whether Dagong is ideologically motivated… well who, pray (besides BMI), is not ideologically motivated?!

A key question is how influential Dagong’s ratings will be in determining whether China’s cash-rich big firms invest in the 50 rated countries. If Chinese firms afford more attention to Dagong than to Moody’s, S&P, and Fitch, then clearly Dagong will carry significant weight. However, it is unlikely that Western firms will abandon the big three agencies any time soon. Also, given that Chinese firms will surely want to invest in Western countries, Dagong will probably be reluctant to downgrade them too far.

The broader point about Dagong’s sovereign risks report is that it offers an alternative discourse in a world that is still largely dominated by Western institutions such as the IMF, World Bank, G-7, NATO, etc, and by Western media such as CNN, BBC, the New York Times, Financial Times, Newsweek, etc. Over the coming decades, as China (and other big nations) rises even further in economic importance, we will eventually see a new and probably non-Western discourse emerge, and we had better get used to it.