Chinese rating agency cuts U.S. debt again

Move unlikely to affect markets, even in Hong Kong

LOS ANGELES (MarketWatch) — Chinese credit-rating agency Dagong Global Credit Rating Co. on Wednesday again downgraded U.S. sovereign debt and warned of further such moves, the state-run Xinhua news agency reported, though the action was unlikely to affect markets.

Dagong cut U.S. Treasurys to A from A+, with a negative outlook, saying growth in U.S. debt is still outpacing revenue growth.

The latest move followed a Dagong downgrade of U.S. debt from AA to A+ in November, citing the launch of the Federal Reserve’s second round of quantitative easing.

“The agency said the approval to raise the debt ceiling indicated that there will not be any positive changes in factors that will influence the country’s debt-paying ability in the long run,” Xinhua reported.

However, the move was unlikely to impact markets, even in the Chinese financial hub of Hong Kong, given the lack of reaction to past Dagong ratings actions.

“At this stage, [Dagong ratings are] not widely a focus of concern,” said Conita Hung, head of equity markets for Delta Asia Financial Markets in Hong Kong. “I don’t think it will have a major impact on markets.”

She said that in any event, the flailing economic recovery in the U.S. and Europe are generally of more concern to Chinese markets than are the credit ratings. Read more on Chinese reactions to U.S. credit ratings.

An Agence France-Presse report noted that Dagong’s chairman is also a paid adviser to China’s government, though the firm insists it is fully independent.

The news came the same day as a Xinhua editorial said the U.S. had failed to defuse its “debt bomb.” See report on Chinese state-media comment on U.S. debt.

Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.

http://www.marketwatch.com/story/chinese-agency-cuts-us-debt-rating-again-2011-08-02-2155480