China’s Dagong Cuts U.S. Credit Rating After Debt Limit Raised

China’s Dagong Global Credit Rating Co. cut its sovereign rating for the U.S. hours after President Barack Obama signed legislation raising the federal debt limit.

Dagong, one of China’s four biggest credit rating companies, downgraded the local and foreign currency credit ratings of the U.S. to A- from A, maintaining a negative outlook, the company said in an e-mailed statement yesterday. That’s below Dagong’s rating of Botswana, which has a A rating, and puts the U.S. on par with Brazil.

“Leaders of nations and institutions have all expressed concern for the situation,” Chinese Foreign Ministry spokeswoman Hua Chunying told a briefing in Beijing yesterday. “The U.S. is the world’s biggest economy, and whether it can resolve the problems matters to its own interest and also the stability and growth of the whole global economy.”

China is the largest foreign holder of U.S. Treasuries and increased its holdings to $1.28 trillion as of July, according to U.S. government figures. Privately owned Dagong rates China’s foreign currency debt AAA.

Dagong’s move came hours after the U.S. Congress voted to fund the government and lift the debt limit, ending a shutdown that began Oct. 1 and took $24 billion out of the economy. Obama signed the bill just after midnight.

Pale Prospect

“A debt crisis evolves into a political crisis, which in turn exacerbates the debt crisis,” Dagong said in the e-mail. “Such political environment over debt repayment renders the dim and pale prospect of the U.S. federal government’s solvency.”

Fitch Ratings put the U.S. AAA credit grade on ratings watch negative on Oct. 16, citing the government’s inability to raise the debt ceiling in a timely manner.

“The hard truth for China is that there’s no alternative for U.S. Treasuries as an investment product,” Li Jie, head of the foreign-exchange reserve research office at the Central University of Finance and Economics in Beijing, said earlier this week. “Whatever happens, undertaking a massive sell-off of U.S. bonds is not an option” for China, Li said before the debt limit was raised.

— With assistance by William Bi, and Xin Zhou

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