Articles & Speeches

To Answer the Historic Call

May 18, 2015 04:53 PM Author dagong Font:TTT

Guan Jianzhong

Distinguished guests and dear friends from the press,

Today, we will witness a moment of historical significance: three sponsors from China, the US, and Russia jointly sponsoring the establishment of a new international credit rating agency-Universal Credit Rating Group. The creation of this new international rating agency symbolizes a new chapter in credit rating history.

Universal Credit Rating Group is the inevitable outcome of human society's evolution into the credit economy stage.

Pushed by the contradiction of capitalist production and consumption, society has undergone a worldwide credit revolution in the past 60 years. It has finally entered the credit economy stage. The major symbols are as follows: First, credit socialization turns credit relationships into the basic economic relationship between social members. Credit relationships, as a capital combination morphology, is integrated into and dominates the entire process of social reproduction and has become the economic foundation of modern society. Second, socialized credit relationships are built up with credit ratings as the medium. The impartiality of credit rating determines the quality of credit relationships, which thus determine the sustainability of social reproduction. The position of credit relationships as the economic basis and its reliance on credit ratings give dominating power to credit ratings over the economy. Third, two pairs of contradictions, e.g. the contradiction between production vs. credit and the contradiction between credit vs. credit ratings have come into being. The infinity of production expansion requires an increasing credit scale. The contradiction of production vs. credit is a pro-cyclical power in the credit economy. As the solvency of a debtor is limited, the creditor requires that credit ratings give an objective description of the debtor's maximum debt. The contradiction of credit vs. credit rating is a counter-cyclical power in the credit economy. The basic contradictions of credit economy development establish the historic position of credit ratings. Credit ratings shoulder the responsibility of the safe development of the economy and of society. The modern world economy is a credit economy based on the international credit system, which consists of numerous credit relationships. The level of impartiality of credit ratings determines the future of the world economy.

The global credit crisis is the very result of the damaged international credit system due to incorrect credit rating information provided by the current international credit rating system, which deviates from the development laws of the credit economy. There are five main problems in the current international credit rating system.

1. The clear position of protecting the interests of the largest debtor country has deprived the current rating system of its due independence;

2. It provides distorted credit rating information to the world by applying severely politicized and ideologically-biased credit rating standards to measure the credit risks of the global economies;

3. The international community does not have regulatory power and the host government also fails to perform managerial responsibilities for the international rating system that is responsible for security of the world politicized and ideolis dominated by the credit rating agencies of a sovereign country. Lack of supervision enables the international rating system, with its incorrect morality and criteria, to have a great deal of influence and cause consequences that the world has to take on;

4. The competition mechanism encourages the rating system to trade rating grades as commodities in order to maximize their own interests, thus making the existing international rating system completely unable to assume public responsibility for the world;

5. The biggest debtor country in the world takes advantage of their say in the international credit rating sector, over-estimates the creditworthiness of countries in the international debt system while under-estimates the creditworthiness of countries in the international credit system, transferring the interests of creditor countries to debtor countries. This resulted in the current imbalance of the world's economic development.

Humankind has no way to enable the current international credit rating system to assume responsibility for the world through simple rehabilitation for the following reasons:

1. The current international credit rating system is an important component of the economic regime of its host country, so its rise and decline concerns the core interests of the state; the international community can by no means influence a sovereign state system;

2. The host government would never take initiative to reform the current rating system;

3. The players in the current international credit rating system lack the understanding to develop laws of credit economy, so they are not motivated to reform and would not know the correct direction to take the reform.

After paying a great price in the global credit crisis triggered by incorrect ratings, human society came to the consensus that the safe development of human society can only be guaranteed by establishing a new international credit rating system that follows the laws of the credit economy and credit rating, represents the common interests of human beings, and is able to shoulder the responsibility of credit rating for the entire world.

This is a historic call.

The international community has explored ways to fulfill this historic mission both theoretically and practically.

Theoretical achievements are mainly as follows:

1. The non-sovereign, non-political, non-competitive, impartial, and without-conflict-of-interest characteristics that demonstrate independence are premises for the new international credit rating system to assume rating responsibilities for the world;

2. The internationalization of credit relationships form a global flow system of capital morphology combined in credit and debt. It is necessary to scientifically reveal credit risk for every pair of creditor and debtor relationships by applying unified rating standards so as to realize the comparison of investment risks worldwide and guide the effective capital flow through the world;

3. The internationalization of credit relationships brings about a global credit risk transmission system. The credit risks caused by a country's or region's incorrect credit ratings may result in a global crisis. A dual rating system is needed to balance this risk;

4. The new international credit rating system should consist of three parts, namely, a credit rating agency, rating standards, and credit rating supervision.

Practical achievement is embodied in the selection of three options:

1. Promoting the harmonization of credit ratings between countries;

2. Establishing regional credit rating organizations;

3. Establishing a universal credit rating agency.

It is obvious that the first two options cannot be the vehicle to represent the interests of all of society, for neither can they meet the requirements of global capital flow for consistent credit rating information, nor do they prevent the rating risks from transmitting. Therefore, it is difficult for them to shoulder the responsibility of credit ratings for the world. Thus, establishing a universal credit rating agency becomes a historic option.

To answer this historic call, Dagong, the initiator and promoter of a new international credit rating system, has conducted repeated consultations with political figures, local credit rating agencies, and relevant organizations from more than 30 countries in the last two years. All of the participants agreed to accelerate the international credit rating system reform, and have enthusiastically endorsed and are willing to take part in establishing a non-sovereign international rating agency that represents the common interests of society, making it a vehicle that represents people's common interests and a new international credit rating system. Under these circumstances, the China-based Dagong Global Credit Rating Co., Ltd, the US-based Egan-Jones Ratings Co., and the Russia-based RusRating have decided to jointly sponsor the establishment of Universal Credit Rating Group.

The nature of Universal Credit Rating Group is a non-sovereign international credit rating agency comprised of private agencies that neither have any conflict of interest with credit ratings, nor represent the political or economic interest of any particular country or group.

The mission of Universal Credit Rating Group is to promote the reform of the international credit rating system and construct a new international credit rating system that can shoulder the responsibility of credit rating for the world and ensure the safe development of human society. They plan to develop new international credit rating criteria, to promote the establishment of an international supervision system for credit ratings, and to provide impartial rating information for the world.

Universal Credit Rating Group is an operational entity with a corporate governance regime. It will decide its market position and profit model through promoting international credit rating system reform according to the requirements of development laws of credit economy and credit rating. The starting point of this entity is the establishment of a dual rating mechanism across the globe that will get involved in all international credit rating businesses in order to perform its duty of providing global ratings.

The headquarters of Universal Credit Rating Group will be located in Hong Kong. The incorporation of the Group is planned to be finished within six months. It will set out to accomplish the following four major goals within five years:

1. Constructing a unified international credit rating criteria;

2. Establishing an international credit rating supervision system;

3. Constructing a global market service system;

4. Developing a capacity to get involved in global credit ratings.

As the initiators of Universal Credit Rating Group, the three sponsors are simply fulfilling their responsibilities as professional credit rating agencies and world  citizens. It is the shared responsibility of the international community to construct a new international credit rating system that ensures the safe development of human society. It needs the joint efforts of the international community to be successful. We are sincerely looking forward to all those who share our vision to join us in this great cause, which represents the direction in which history is moving.

As an emerging credit rating power in the international arena, Universal Credit Rating Group will surely face many challenges. However, we justifiably believe that the Group could successfully undertake the historic mission backed by the tides of time, as it is a result of a deep understanding of the credit economy and practical achievements after paying a great price. It is a brand-new entity that benefits all of society.

Thank you.