Inaccurate ratings made them into a whipping boy in the financial crisis: US-based ratings agencies. Now, China and Russia want to form their own agency. Should Moody's & Co. be concerned?
Anton Siluanov's words could have been understood as a battle cry against the West: "We want ratings to be apolitical," the Russian finance minister said. He directed his frustration squarely at the leaders in the rating agency world: Standard & Poor's, Moody's and Fitch. A new Russian-Chinese credit rating agency could counter the three most influential rating agencies, all based out of the US. This would provide for balance and fairer ratings - in theory.
But experts are skeptical that a rating agency based on collaboration between Russia and China could guarantee more transparency. "It makes no sense," said financial economist Rudolf Hickel. He sees the coalition as a reaction to closer economic cooperation between the US and Europe, for example in a potential free trade agreement.
More and more indications are emerging that economic cooperation between Russia and China is also increasing - for example, by way of a gas contract signed in May that runs into the billions. Could a joint rating agency serve as a cornerstone for further cooperation?
Hickel quickly dismissed this possibility: "It's most likely a symbolic act toward economic cooperation - but really at a marginal level. It should not be taken seriously." There are far more important projects that would strengthen trade relations between China and Russia, he added.
But that the announcement included such fanfare indicates that Moscow and Beijing likely were not able to come to any agreement on more important issues, Hickel said. He thinks the project is likely to fail.
Experts continue to insist that there should be more competition in the rating agency realm, as the US agencies granted high ratings to securities that were later deemed junk.
Autonomy highly regarded
Potential problems in a Russian-Chinese rating agency are plain to see: Such agencies survive off of trust in the independence of their ratings. The highly political nature of such a creation could damage the agency before it even got off the ground. Another glitch: Rating agencies not long ago downgraded Russian bonds to one step above junk.
Reservations over such a project don't come only from the West. Russian financial expert Igor Nikolayev told Russian news agency Ria Novosti that trust for a new agency is only built slowly over time.
That may be why the new agency is set to begin with small steps. It's supposed to eventually announce international recommendations, but for now will only offer ratings on Russian-Chinese joint ventures.
Regulation over competition
Russia seems to need such a project more than China. Under impulse of the People's Bank of China, the Dagong Global Credit rating agency took up its mantle 20 years ago. It has since gained international renown.
Although Hickel is among those who support more competition in the ratings realm, he also promotes rating agency reform. "We need comprehensive regulation for all rating agencies around the world," he said.
Such reform would also address the conflict of interest where companies that issue financial instruments pay the US agencies for ratings.