It's not just the US that retaliates against credit agency downgrades: China - which is almost as authoritarian as the US but at least does not pretend to be some beacon of democracy or virtue - does too, only in China's case Moody’s, which on Tuesday downgraded the outlook for China’s A1 long-term local and foreign-currency issuer rating to negative from stable, had a pretty good idea what would happen after its action became public and advised staff in China to work from home ahead of its cut to the outlook for the country’s sovereign credit rating.
According to the FT, some Moody’s department heads in the country told associates on Friday that non-administrative staff in Beijing and Shanghai should not go into the office this week, they said.
“They didn’t give us the reason . . . but everyone knows why,” said one China-based Moody’s employee, referring to the request to work from home. “We are afraid of government inspections.”
The staff member said Moody’s also advised analysts in Hong Kong to temporarily avoid travel to the Chinese mainland ahead of the cut; he also said working from home might prevent Chinese authorities from questioning many employees in one place if they decided to raid the agency but added that such a raid was still considered to be unlikely.
The move by the US rating agency highlights the unease of many foreign companies doing business in the world’s second-largest economy, where some have suffered police raids, exit bans for staff and arrests amid tensions between China and the US and its allies. Similar forceful responses are heaped upon companies that operate in the US as well, only the ruling regime's fascist tactics are somewhat more subtle, which is why the White House has weaponized the DOJ to do anything and everything Biden's handlers want it to do.
A Moody’s spokesperson said: “Our commitment to maintaining the confidentiality and integrity of the ratings process is paramount and therefore, we cannot comment on internal discussions, if any, related to specific credit ratings or issuers.”
In the past year, Chinese authorities have raided the offices of several US-based consultancies and detained local employees of due diligence group Mintz over what Beijing said were national security concerns.
“We’ve seen crackdowns on due diligence companies and other firms, but those have been motivated by issues beyond just negative commentary,” said Michael Hirson, a China analyst at 22V Research in New York.
“I would be surprised if Moody’s rating action, which is based on just an argument about the outlook, generates anything remotely like an overt crackdown on the company,” Hirson said. “But clearly how the authorities handle this will be a test that investors and the business community are watching.”
Naturally, Moody’s latest rating action has already triggered a spate of criticism from Chinese officials and on social media. In a statement on Wednesday, the National Development and Reform Commission, an economic planning body, accused the rating agency of “bias and misunderstanding of China’s economic outlook”.
A popular WeChat social media account operated by state broadcaster China Central Television on Wednesday dismissed Moody’s concerns about a slower growth outlook and soaring government debt, claiming that Chinese authorities had “always been working on annual projects, looking at five-year plans while thinking about the long term”.
“A misjudgement by [Moody’s] will not cause too much harm for the Chinese economy,” said the post. “It may cause the company to lose its credibility.”
Another Moody’s staff member said some of the points raised by Chinese authorities made sense and that the agency was concerned about regulatory risks following the rating action.
“The Chinese authorities can make trouble for you if they want to,” the person said.
It is unclear if fears of retaliation were behind the apparent leak of the news: according to Reuters, hours before the Tuesday downgrade, speculation that such a move was imminent was circulating on Chinese social media platform WeChat.
"It is said that Moody's will downgrade China's sovereign credit rating, and an announcement will be made in the afternoon," according to one WeChat post in Chinese translated by Reuters, in a chat group with several hundred people.
Ratings leaks are quite common but can be difficult to pin down since they can come from different sources, said Alexander Michaelides, professor of finance at Imperial College London, who has researched and published academic papers on the systematic leakage ahead of official sovereign debt rating announcements.
"It is quite common, but it is difficult to show that it has happened. And it happens in many countries around the world – even in countries with very high institutional quality," Michaelides said.
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Despite concerns, the rating agency on Wednesday also lowered its outlook for Hong Kong, Macau and 18 Chinese state-owned and private companies, including tech groups Tencent and Alibaba, from stable to negative.
In a statement, the rating agency said the rating action was “primarily” driven by the change in outlook for China’s government credit ratings and reflected increased risks “related to structurally and persistently lower medium-term economic growth”.