More trouble for US: China now downgrades its ratings

BEIJING: The world may still be debating the consequences of the US federal government's decision to raise the country's debt limit. But China's State-controlled credit rating agency, Dagong Global Credit Rating Co., has cast the first stone by pushing US rating into negative territory.

The move might mean drastic cut in China's purchases of US bonds, which will put US borrowings in serious jeopardy. China is the largest foreign holder of US debt, with holdings amounting to 1.15 trillion US dollars as of April end.

"This incident will definitely exert its continuous impact on investors' confidence in US Treasury bonds, affecting the stability of the US debt income," Dagong said on Wednesday while announcing it has cut the credit rating of the United States from A+ to A with a negative outlook.

Moody's, the international rating agency last month put US credit rating on a watch list. A final call from the international agencies after the latest US move is now expected.

Last Monday, the US House of Representatives approved legislation to raise the country's debt limit by at least 2.1 trillion US dollars and cut federal spending by 2.4 trillion US dollars, one day before a threatened default.

The interests of the country's creditors are short of systematic protection both politically and economically, the Chinese agency while explaining its decision to downgrade the US rating. It has also recently downgraded Poland's sovereign credit rating.

Dagong said the United States has to reduce no less than four trillion US dollars in its fiscal deficit in the coming five years to sustain its liability scale. The increase in US debt ceiling shows there will not be any positive changes in factors that will influence the country's debt-paying ability in the long run, it said.



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