U.S. Cut to Same as Level as Colombia by Chinese Ratings Firm

The U.S.’s credit rating was cut to the same level as Colombia’s by a Chinese rating firm, which cited deteriorating debt repayment sources that’ll be further undermined by President Donald Trump’s proposed corporate tax cuts.

The sovereign rating in both local and foreign currency for the world’s biggest economy was cut to BBB+ with a negative outlook from A- and a stable outlook, Dagong Global Credit Rating Co. said in a report Tuesday. That contrasts with New York-based Moody’s Investors Service’s Aaa and S&P Global Inc’s AA+ for the U.S.

"The debt economy model determined by the U.S. political system, strategy and economic base will not change," Dagong said. "Tax cuts have increasingly adverse effects on the government’s repayment resources."

China’s government last year said a downgrade to its sovereign credit rating in September from S&P Global ignored the country’s sound economic fundamentals. In May, it rebuked a downgrade by Moody’s, saying it overestimated the country’s economic difficulties.

Bloomberg News reported last week that officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. China’s State Administration of Foreign Exchange subsequently said such news "might have cited wrong sources or may be fake news."

Privately-held Dagong, established in 1994, isn’t formally tied to the Chinese government. It started sovereign ratings in 2010 in a bid to break the monopoly of U.S. rating firms, according to the company’s website, mirroring the government’s strategy of gaining greater influence on the global stage.

Still, Chinese credit rating companies have yet to win credibility among global investors due to the inflated scores they give to domestic bonds. A large chunk of local notes in China are rated AAA by those credit assessors. That is much higher than what international rating firms normally rate Chinese companies.

Its cut to the U.S. brings that rating in line with Colombia, which is also rated at BBB+.

— With assistance by Yinan Zhao, and Lianting Tu

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