George Chen

By George Chen
The opinions expressed are the author’s own.

You may think I am overly cynical today but let me first ask you a simple-yet-complicated question — what is fair?

Global ratings agency Moody’s said yesterday that the United States will retain its top AAA credit rating after President Barack Obama signed a bill to raise the federal debt ceiling. However, we heard very different opinions from China on the credit rating of the world’s No.1 economy.

A Chinese ratings agency yesterday downgraded the U.S. from A-plus to A, saying the deal to lift the debt ceiling would not solve underlying U.S. debt problems or improve its debt-paying ability over the long term.

Dagong Global Credit Rating, a relative newcomer to the sovereign debt rating realm and little known outside of China, said in a statement that the U.S. decision to raise the borrowing ceiling would  not change the fact that the growth of its debt had outpaced overall economic growth and fiscal revenue.

Global ratings agencies are “unrealistic” in their assessment of U.S. credit, overestimating the ability of the U.S to pay off debt, Dagong’s chairman Guan Jianzhong told our correspondent Lucy Hornby in Beijing. Click here to watch the full TV interview online, brought to you by Reuters Insider.

I’m not going to tell you which rating is more accurate. Readers of my column on Reuters.com are mostly professional investors, so I am sure you have your own clear thoughts on this. The opposing views from Moody’s and little-known Dagong interest me purely because I really don’t know these days who is really telling the truth in the financial market.

When almost nobody is reliable and you can only rely on yourself, it’s really quite a scary feeling, isn’t it? Let’s imagine — today the U.S. budget ceiling adjustment took place in China, or perhaps France. What would the reactions of  rating agencies be?

I am of course not a ratings expert but I don’t think it’s rocket science. It’s just a decision on a combination of numbers and facts without any subjective thoughts or emotions.

Moody’s decision to keep the United States “Triple-A” and Dagong’s decision to downgrade the U.S. (made, some people say, for the sake of Beijing’s political agenda in Sino-U.S. relations) actually mean the same thing — that such ratings are merely subjective rather than based on facts and are in fact a potential and indirect risk to global economic recovery.

In the statement issued by Dagong downgrading the United States, the firm should probably have noted in its disclaimer that the U.S. Securities and Exchange Commission had denied Dagong’s application to become an officially recognised bond rater in the U.S.

Since then, Dagong has often verbally attacked the credibility of the SEC and the U.S. government. Google the news and you will find more buzz about the bad relationship.

So, tell me, who do you believe these days?

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A Moody’s sign on the 7 World Trade Center tower is photographed in New York August 2, 2011 REUTERS/Mike Segar

By George Chen
The opinions expressed are the author’s own.

Let’s talk about Italy.

Italy is about art — Leonardo da Vinci, Michelangelo Buonarroti and more names. Italy is about luxury — Prada, Salvatore Ferragamo and more brands. Italy is also about food.

But, right now, Italy is about debt — huge national debt that is putting the entire eurozone or even the rest of the world into market panic. So, who’s going to rescue Italy?

Perhaps Chinese investors. They are focused on Italy these days because the deepening debt crisis there has become a negative external factor dragging down the benchmark Hang Seng Index for two straight trading sessions. At the beginning, people were not fully aware of the situation, as some thought Italy could not be Greece.

After all, Italy is the No.3 economy in the euro zone. How can Italy be in crisis? If Italy is in trouble, what about the rest of Europe? Yesterday, I moderated an online forum where a former Trade Commissioner for the Italian government spoke. Mr. Romeo Orlandi, an old China hand, who’s now teaching globalisation at the University of Bologna in Italy, said Italy was “too big to fail”.

The European Union may find it difficult to work with the current Italian government given political dramas related to Prime Minister Silvio Berlusconi and the highly complex domestic politics in Italy, but one likely scenario is that Italy should survive from the growing debt crisis in Europe if Beijing decides to step in to help.

The Chinese government is already suffering from the “cheap dollar”, given its more than $3 trillion in foreign exchange reserves, in which U.S. dollar assets play a major part. As such, a “cheap euro” may be the last thing Beijing wants to see.

Beijing has already pledged to help at least two European nations — Greece and Portugal — solve their debt problems by buying government bonds. Mr. Orlandi expects that Beijing could take a similar approach with Italy.

The link between Beijing and Rome strengthened further after Prada floated shares in Hong Kong. The luxury handbag maker has already established a strong customer base among China’s fast-growing middle-class. Today, Italian media broke the news that Berlusconi’s AC Milan soccer club may consider Hong Kong for its planned IPO.

Chinese Premier Wen Jiabao traveled to Italy early this year to show his support for Sino-Italy business cooperation. Recent media reports also indicated that China Development Bank, a policy bank turned commercial lender strongly backed by the Chinese government, may pour more money into business opportunities in Italy.

The truth is the deeper you get in, the more difficult it is to get out. But let’s try to think positive. When a crisis occurs, it certainly also means opportunity. To Beijing, it’s time to consider what role it should play in Italy’s growing debt crisis. To the rest of the world, if Beijing steps in, then what else shall we worry about?

Of course, analysts at Moody’s may disagree with me as they have a fight in words and reports with Beijing on how financially healthy the Communist nation is, but that’s another story. Economists have been forecasting that the Chinese economy could collapse for the last decade, but nothing has happened yet.

So let’s focus on Italy — for now.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A man walks in front of a Prada store in Hong Kong June 12, 2011 REUTERS/Tyrone Siu

By George Chen
The opinions expressed are the author’s own.

If the heavy snows engulfing London’s Heathrow Airport are the last thing Europe wants to see, then a big cheque from Beijing could be the best Christmas gift the continent — once the centre of the world, but apparently no longer — could receive this year.

The Chinese government is ready to buy 4-5 billion euros (US$5.3-6.6 billion) of Portuguese sovereign debt to help the country ward off debt market pressure, the Jornal de Negocios business daily reported on Dec. 22. Without citing any sources, the paper said a deal reached between the two governments would lead to China buying debt via auction or in the secondary market during the first quarter of 2011.

The news of Beijing seeking to invest in Portuguese bonds soon helped the euro gain ground against the U.S. dollar and bounce up from an all-time low against the Swiss franc on Wednesday. It also boosted U.S. investor confidence in bank stocks at home. The potential new credit crisis in many European nations such as Greece, Spain, Portugal, Ireland and even Italy has been a growing global concern for capital markets.

Beijing’s help could certainly ease such worries to a certain extent if the news can be officially confirmed. China’s central bank has chosen to remain silent on the report, so far.

Premier Wen Jiabao, often dubbed “Grandpa Wen” at home for his easy-going personality with ordinary people, visited a number of European countries including Portugal and Greece earlier this year. At the time, Wen’s trip was already considered a new sign of China’s growing influence in Europe, with Beijing expected to lend a hand to its national debt problems as nobody would think of turning to the United States any more for such a role in the wake of the financial crisis.

Will Portugal be the last European nation to get Beijing’s help? Unlikely. Greece is also understood to be on the waiting list to get Chinese money for its new sovereignty bond issue. However, if such aid continues, Beijing may face twin pressures from the United States and its own people.

Beijing has complained about the U.S. government’s so-called “carrot and stick diplomacy” since the days of Mao Zedong, the country’s first Communist state head, Now it’s becoming less arguable whether China will take the same approach with those so-called “friendly countries”. The United States may monitor Beijing’s financial aid for Europe closely to check for links between the money and human rights issues.

Domestically, Beijing is concerned about social stability, in particular after inflation hit repeated highs this year. Some local media reports suggested that university students in some third- and fourth-tier cities had started to protest about increasingly expensive food bills on campus. Does this remind you of anything from more recent Chinese history?

On the other side, the Chinese economy itself is far more open than when ”New China” was founded by Chairman Mao in 1949, as the country still relies heavily on external trade. When we look forward to 2011, the global market environment to a very large extent is clearly linked to developments in the European debt issue. Beijing is helping Europe extricate itself from this potential new credit crisis as it also wants to avoid any negative external impact on its own economy next year.

Something pretty interesting I found out this week about China, which I also take as a good sign of Beijing’s more open-minded attitude towards the world: When China’s top banking regulator Liu Mingkang met a group of Hong Kong reporters briefly in Beijing just few days ago, Liu said ”Merry Christmas” and asked the Hong Kong media types to pass on his wishes to the people of Hong Kong, the former British colony.

Liu studied in London for some years in the late 1980s, so he must know what Christmas means in the West, even though Chinese Communists should not believe in any religion. Just five or six years ago, Chinese media were still very careful about reports concerning Christmas. Even if they mentioned it in articles, it should not carry any religious overtones. Not so many years ago, a Communist official could even be sacked or demoted for speaking about Christmas or related matters in public if he was not careful enough.

Today, Liu wishes you all a merry Christmas and Beijing is actually offering the whole of Europe a Christmas surprise via its commitment to support Portugal’s debt issue. Clearly, the world has truly changed within just few decades. So, are the rules of the game now being changed by global politics and markets?

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: China’s President Hu Jintao (L) shakes hands with his Portuguese counterpart Anibal Cavaco Silva at Belem presidential palace in Lisbon November 6, 2010. REUTERS/Luis Felipe Catarino/Handout