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SEC Denies China's Dagong of Market Entry After U.S. Debt Downgrade
By Dian L. Chu, Economic Forecasts & Opinions
The U.S. Securities and Exchange Commission (SEC) on Thursday denied the application by China's largest credit rating firm--Dagone Global Credit Rating Co.--to become a Nationally Recognized Statistical Rating Organization (NRSRO) in the U.S. 
The SEC cited concern regarding cross boarder supervision since “It does not appear possible at this time for Dagong to comply with the record keeping, production, and examination requirements of the federal securities laws."
Media report quoted an SEC official that Dagong is the first firm to be denied by the SEC since the regulations governing the application process went into effect in 2007.
Dagong’s claim to fame came with its first international sovereign ratings report released in July of this year. In the report, Dagone stripped the U.S. the AAA rating, while giving emerging economies like Brazil and China higher credit ratings than the US , the UK, and Japan. Those ratings widely contradict the ones assigned by the Big Three – Moody’s, Standard & Poor's, and Fitch.
Dagong, then followed up with some sharp criticism of its western counterparts, and a verbal clash with Harold "Terry" McGraw III, whose company owns Standard & Poor’s credit agency.
So, it is of no surprise that Dagong immediately issued an angry rebuff calling the SEC’s decision discriminatory against China and a barrier specifically set for Dagong. It also takes the matter a few octanes higher –citing China’s sovereignty and financial assets safety are at issue here. From People’s Daily Online:
“….the contention by U.S. authorities… amounts to bias against Chinese credit-rating agencies. Dagong will not accept the NRSRO status at the price of betraying national sovereignty….. Dagong will consider conducting activities at the right time to protect its rights, including seeking legal actions against the SEC."
China Daily also cited Dagong statement that having China's own say in credit rating in the United States is significant to safeguarding the security of China's overseas financial assets. And Dagong aims to enter the U.S. market to protect China's interests as the largest creditor there. As of July, China held $846.7 billion worth of U.S. Treasurys, according to official U.S. data.
Although Dagong’s ownership structure is not public information, the company works closely, and undoubtedly has significant linkage to the Chinese government. So we can pretty much take whatever coming out of Dagong as “quasi-official,” at the minimum.
Meanwhile, quite Interestingly, a Xinhua editorial quoted Jiang Yong, director of the Center for Economic Security Studies, that he was "shocked" as to how the 'Big Three' ratings agencies have been able to penetrate and accumulate a database “far bigger” than that of the Chinese government over the past three years.
With its increasing wealth and presence, China is becoming more aggressive and assertive in global affairs. While China’s been successful in entries into sectors such as energy, mining, and banking, credit rating is one financial niche that China has not been able to crack. Beijing is obviously getting anxious as the world's largest sovereign debt holder, and Dagong is the only major Chinese rating company without foreign ownership.
SEC’s delivery of this denial of entry news coincides with Japanese PM’s rejection to China’s demand for apology and compensation for the seizure of the fishing boat and its crew. And Beijing is already unset with Washington’s involvement in the sea border disputes with Japan and China’s other neighboring countries, and had signaled for the U.S. to stay out of it. This is on top of the newly escalating yuan and trade dispute.
In the midst of all, Beijing is most likely going through a heightened sense of national identity and image crisis right now. As such, Dagong will unlikely go away quietly, while the U.S. is not going to let Beijing breathe down the neck of its T-bill. Now, I wonder which jurisdiction would Dagong bring this law suit against the SEC?
Note: More of my blog entries covering the saga of Dagong here. Statement on SEC Rejection by Dagong here.
Dian L. Chu, Sept. 26, 2010
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What's really striking about the Dagong analysis is the lower GDP number. This reminds me of a chart of GDP showing negative growth starting in 2001, a chart showing the contribution of home equity borrowing. In other words the US has been in recession since 2001 if you take out home equity leverage.
http://www.financemetrics.com/chinese-economy-not-as-indispensable-as-yo...
Joe Mutt Lun YAY
The SEC has requirements for disclosure. Dagong wants an exception due to "state secrets." What state secrets will be revealed? Well, China declares whatever it wants to be a state secret, whenever it feels like it.
When I saw the headline I laughed because the SEC doesn't have any business regulating anyone, they cannot even regulate themselves. From personal experience and comments from others, the SEC also does not understand modern finance.
That said, if you think having a Chinese government rating agency that declares "state secrets" to avoid disclosure is an improvement, think again. This is a clown fight between two governments who are trying their best to hide the bodies.
china is hardly alone in declaring "whatever it wants to be a state secret, whenever it feels like it." the bush and obama administrations are infamous for this same behavior.
Only difference being that they are naive enough as to declare it clearly instead of saying they would comply with transparency rules and then making all sort of things behind courtains.
China is lacking in the duplicity department.
This will play them tricks.
Duplicity is the hallmark of the US. They are unbeatable in it.
awhh, dont make me say it...
All your SEC porn are belong to us, make your time!
Heh
A more balanced perspective, perhaps:
http://news.xinhuanet.com/english2010/business/2010-09/26/c_13530849.htm
It ain't like they don't know what's going on.
This is not going to look good to the Chinese man on the street. Take a look at this
http://www.sec.gov/rules/other/2007/34-56510.pdf
Those SEC Porn Surfers are Class A morons.
Meanwhile, the "so called" rating agencies are living in LaLa Land.
UNITED STATES OF AMERICA BEFORE THE SECURITES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934 Release No. 56510/September 24, 2007
ORDER GRANTING REGISTRATION OF JAPAN CREDIT RATING AGENCY, LTD. AS A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION
Japan Credit Rating Agency, Ltd., a credit rating agency, furnished to the Securities and Exchange Commission (“Commission”) an application for registration as a nationally recognized statistical rating organization (“NRSRO”) under Section 15E of the Securities Exchange Act of 1934 (“Exchange Act”) for the classes of credit ratings described in clauses (i) through (v) of Section 3(a)(62)(B) of the Exchange Act. The Commission finds that the application furnished by Japan Credit Rating Agency, Ltd. is in the form required by Exchange Act Section 15E, Exchange Act Rule 17g-1 (17 CFR 240.17g-1), and Form NRSRO (17 CFR 249b.300) and contains the information described in subparagraph (B) of Section 15E(a)(1) of the Exchange Act.
Based on the application, the Commission finds that the requirements of Section 15E of the Exchange Act are satisfied.
Accordingly,
IT IS ORDERED, under paragraph (a)(2)(A) of Section 15E of the Exchange Act, that the registration of Japan Credit Rating Agency, Ltd. with the Commission as an NRSRO under Section 15E of the Exchange Act for the classes of credit ratings described in clauses (i) through (v) of Section 3(a)(62)(B) of the Exchange Act is granted.
By the Commission.
Nancy M. Morris Secretary
UNITED STATES OF AMERICA BEFORE THE SECURITES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934 Release No. 56510/September 24, 2007
ORDER GRANTING REGISTRATION OF JAPAN CREDIT RATING AGENCY, LTD. AS A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION
Japan Credit Rating Agency, Ltd., a credit rating agency, furnished to the Securities and Exchange Commission (“Commission”) an application for registration as a nationally recognized statistical rating organization (“NRSRO”) under Section 15E of the Securities Exchange Act of 1934 (“Exchange Act”) for the classes of credit ratings described in clauses (i) through (v) of Section 3(a)(62)(B) of the Exchange Act. The Commission finds that the application furnished by Japan Credit Rating Agency, Ltd. is in the form required by Exchange Act Section 15E, Exchange Act Rule 17g-1 (17 CFR 240.17g-1), and Form NRSRO (17 CFR 249b.300) and contains the information described in subparagraph (B) of Section 15E(a)(1) of the Exchange Act.
Based on the application, the Commission finds that the requirements of Section 15E of the Exchange Act are satisfied.
Accordingly,
IT IS ORDERED, under paragraph (a)(2)(A) of Section 15E of the Exchange Act, that the registration of Japan Credit Rating Agency, Ltd. with the Commission as an NRSRO under Section 15E of the Exchange Act for the classes of credit ratings described in clauses (i) through (v) of Section 3(a)(62)(B) of the Exchange Act is granted.
By the Commission.
Nancy M. Morris Secretary
Protectionism and corporatocracy... the American way.
Guess you are Chinese. Well, in my mind, Dagong is just a clown designed and manufactured by the Chinese Communist government. Of course, the US does not deserve a triple-A rating. But our Communist China is by no means better. With so many tacitly guaranteed obligations like the social welfare, the state-owned banks, etc, China should not be labelled as AAA.
"With so many tacitly guaranteed obligations like the social welfare, the state-owned banks, etc, China should not be labelled as AAA".
Good to know that each and every sort of welfare State doesn't qualify for triple A: Scandinavians thank you.
I remember to you that one of the few US States which manage to stay somewhat afloat is North Dakota, who has a public owned bank and is the only US State experiencing growth in 2009.
BTW, after the introduction of the Medicare reform U.S. doesn't qualify anymore: Dagong is right after all.
Three american clowns against one chinese juggler... Is the Circ du Soleil performing in Wall Street?
Perhaps the criminally negligent (at best) American rating agencies can benefit from some good old American competition, particularly since the SEC and everybody else in the "regulation" racket are corrupt jokes.
Not saying they'd necessarily be any better, but they might serve a priceless "checks and balances" function (another of those wonderful American ideas) in the rating industry.
One thing seems clear: They would have people thinking and talking about credit ratings, including sovereigns.
Hmmm, perhaps that's the problem . . .
Damn, how bad do you have to be to not measure up by SEC standards?
Perhaps they should take it as a compliment! Additionally, I see that, in the SEC's opinion, they cannot, rather than refuse to, meet those standards. What to say about that . . . is that like being thrown out of the crack house by the ho's because you're too "uptown"?
Seriously, this looks potentially bigger to me than the little rows they've been having with Japan. This could open some serious floodgates.
Hmmm! You mean regulatory standards...or political standards? Inquiring minds would like to know.
Guess they didn't get the memo to send a truckload of pron and Chinese hookers along with the application.....
From: SEC
To: China
Re: Yourdong's registration as NRSRO
Intlrpletured bly Trubo Tax
Prease le-slubmit aprikshun incruding tlanny plorn insted legrurr porn.
Rove,
Enflorcment Divishun
(BDSM deplarthment)
"Time for chains"
"You wiggle, we giggle"
Perhaps they were heroically intercepted in defense of the integrity of the industry by Moody's, Fitch, and S&P. Or the prawn were oil-free and the hookers weren't trannies.
I think the Chinese will appreciate how surreal this is just as I do, but I doubt they're going to find any humor in it.
Dear China,
Go blow it out your goddamn shorts.
Love,
America
Dear America,
We own you. Do as we say, or we'll dump our Treasuries and precipitate instant hyperinflation in your obnoxious little country. Oh, and don't bother with military threats. We've got nuclear subs that you can't detect even when they are in the middle of one of your carrier fleets, and each is equipped with enough nukes to take out half your cities.
DO NOT FUCK WITH US.
Love,
China
Da Gong show ...
The unknown comic says : " You know what would be funny? 1 Billion pissed off Chinese with pitchforks after the CCP sells $800bn USTs repatriates and prints RMB ..."
The Chinese cannot sell their USTs en masse. There is nowhere the money can go without catastrophic effect.
That's like saying there is no place to set off a nuclear bomb without catastrophic effect.
Well, DUH, that's the point!
"The Chinese cannot sell their USTs en masse. There is nowhere the money can go without catastrophic effect"
Not necessarily, it all depends on the opportunities presented to the PRC. Take today for example, nations worldwide are doing their level best to buy USD in a race to maintain export market share (devalue), yet the DXY is having egregious difficulty breaking resistance at this level. I wonder who might be taking the other side of that trade, hmm?
The PRC is divesting, as 'en masse' as it can safely do so. Just like anybody with a large position in anything they wanted out of would do.
Regards
Dream on. The Chinese are so far below our league in everything except cheap labor and the ability to steal intellectual property it isn't funny. They're begging for a spanking (though that might have to wait till our hapless leader is voted out in 2012).
You remind me of this guy: http://1-2knockout.typepad.com/photos/uncategorized/2008/04/06/bart.png
Others are not as naive as the citizens of Rock Ridge.
lol. you're thinking of the 80's.
What type of rock are you smoking? Jumbo? Crackerjack?
Ask not for whom Dagong tolls; it tolls for thee.
Regards
goinfawr, Best comment
I guess if they are worried about their AAA rated treasuries, they could unload them.
http://www.youtube.com/watch?v=ezSm9TLci6M
The imploded buildings are just 21st century chest-thumping.
no do not love it, do not love it. if this a precursor to "reality" these events can move very quickly. our "debt" is owned by everyone and "all the exits are closed." truly terrifying.
I love it love it! Do us a favor China..let the world know how bad we really are...maybe someone will listen...or advise your investors that the US is headed for a large loss.
LONG LIVE THE MIRAGE BITCHES!!
KEEPING THE DREAM ALIVE!!