HOME Recent Events RMI in the News ALUMNI
Issue 9 | Archive  

November 2011

RMI Hosts Dagong Chairman to Speak on Credit Rating Reform

Mr. Guan Jianzhong, Chairman of the Board and President of China's Dagong Global Credit Rating Co., Ltd, shared his insights on "The U.S. Downgrade and Global Credit Rating Reform" with close to 100 academic and industry participants in RMI's latest public lecture on 21 September 2011. He urged international societies to reach strategic consensus on global credit rating reform based on the underlying principles of the credit economy, and eventually to construct a new global credit rating system to enhance the stability of the global economy.

Mr. Guan, a former government official of the Ministry of Aviation Industry before joining Dagong in 1998, specialises in credit economy, credit system development, international credit system and theoretical study on credit rating. He has been dedicating a significant amount of time and effort to the development of China's credit rating market and analytics. Under his leadership, Dagong published its first sovereign rating report on 50 countries on 11 July 2010, giving higher ratings than other rating agencies for nine emerging countries such as India, China, Indonesia and Brazil, and lower ratings for 18 countries which include the U.S., the U.K., France and Germany. Dagong's controversial move stirred intensive discussion and debates globally. However, Dagong shocked the world again when it cut the U.S.'s credit rating from AA to A+ with negative outlook on 9 November 2010, and from A+ to A with negative outlook on 3 August 2011, three days before S&P's downgraded the U.S. Treasury debt from AAA to AA+.

In his speech, Mr. Guan at first reviewed the progress of the global credit rating reform after the 2008 financial crisis. The defects of the existing global credit rating system, which is dominated by U.S. firms, have surfaced during the crisis. The credit rating agencies were sharply criticized after the financial crisis for offering top-level ratings on billions of dollars of mortgage-backed securities that later lost substantial value when the housing market collapsed. However, a global recognition of the importance and urgency of credit rating reform is still absent, he noted. "There is neither a systematic thinking process nor action plan to revamp the global credit ratings system, but merely a consensus being reached on strengthening the regulatory framework," said Mr. Guan.

He further commented that there is urgency in reforming various aspects of the existing credit rating system such as supervision, ethics, rating mechanisms and standards, etc. The credit rating system is not only important to the recovery of the global economy, but also vital to the global social security, he added. "It is very dangerous to think it'll be good enough to prevent another crisis by fixing existing problems within the current credit rating system," he said. Instead, he claimed that it is critical to build up a brand new system to benefit the world in the long run and urged the international societies to work together on this.

He further proposed three key components of the new credit ratings system in his framework: a global credit rating regulator, a global credit rating agency and a set of global credit rating standards. "It involves the fundamental interests of all global members in the current credit rating system," he noted. Thus, in addition to innovations in the practice and participation, "agreement on the fundamental issues" is the key to the success of the reform.

His talk was followed by an engaging Q&A session during which a number of financial professionals expressed their appreciation of Mr. Guan's effort.

Back To Newsletter

Published quarterly by Risk Management Institute, NUS
Editor: Ivy Wang (rmiwy@nus.edu.sg)