Recently, Moody's massive downgrade of China's sovereign rating, as well as the ratings of numerous state-owned units, has sparked widespread concern and speculation. Rumours have it that Moody's is shorting the Chinese market in preparation for the influx of dollar capital, but a Wall Street expert offers a different opinion. According to the expert, Moody's is not so ambitious, they are just a for-profit institution. So what is the real purpose behind Moody's massive downgrade?
According to the expert, Moody's actions are actually aimed at making money. So what exactly is the purpose of their downgrade?This requires us to start with the issue of Chinese bonds. The scale of China's debt is already so large that it has no choice but to turn it in. Wall Street's experience has shown that direct money printing is not feasible, so there are two common ways to deal with it: one is to wrap the debt and then list it for trading, and the other is to issue new debt to pay off the old debt. According to experts, China is trying both approaches, but the scale of issuance is still relatively conservative and does not effectively solve the debt problem. As a result, Americans expect China to issue a larger ** bond in 2024.
It is in these two ways that Moody's smells the opportunity. Whether it's packaging debt for listing or issuing new debt, the key is to be able to sell it. Bonds of many countries are issued globally, and U.S. Treasuries are a typical example. It may not be realistic for China to settle such a large debt in its domestic market, so it will inevitably issue bonds to foreign investors. And this is directly related to international credit ratings. Moody's quickly downgraded the ratings of high-debt** and state-owned units, which, on the one hand, could prevent them from issuing debt on a large scale on the international market, and this "service" could charge the United States**. On the other hand, for so many units in China, it will be a matter of paying whether they are willing to find a way to get Moody's to upgrade their ratings. Therefore, what Moody's is doing is actually a kind of "hooligan business", collecting money from both ends, and not thinking too much of the American capitalists.
This expert view may seem sensational, but from a certain point of view, it can further decipher the real motives of Moody's large-scale downgrade. Of course, this is only a point of view, and the specific situation needs to be further observed and studied.
China's debt is so large that it has come to the point where it has to take measures to reduce it. At present, China is trying two main ways to alleviate debt pressure: packaging debt for re-listing and issuing new debt to pay off old debt.
1.Packaged debt relisting: This method is similar to subordinated bonds in the financial market, where the otherwise dispersed debt is packaged into a financial product and traded in the market. In this way, the risk of debt can be transferred and diversified, attracting more investors to participate, thereby reducing the pressure on debt. The U.S. financial markets are flooded with a large number of these financial products, and China has made relatively few attempts to do so.
2.Issuing new debt to pay off old debt: This is a more common way to pay off old debt as it matures by issuing new debt. This can extend the maturity of the debt and reduce the pressure of repayment now. China has already made some attempts in this regard, and has achieved certain results. However, due to the relatively conservative scale of issuance, the debt problem has not been completely solved, and the debt crisis of the local ** has only been temporarily alleviated.
Wall Street experts believe that China will issue a larger ** bond in 2024, which will attract more money to come in. This also found business opportunities for Moody's. Moody's downgrades** and state-owned unit ratings can prevent large-scale bond issuance in the international market, a "service" that can charge the United States**. On the other hand, for those units that wish to upgrade their ratings, they will have to pay to meet their targets.
Moody's massive downgrade of China's sovereign rating, as well as the ratings of numerous state-owned units, has indeed sparked widespread speculation and discussion. From the point of view of Wall Street experts, Moody's aims to make money, not to short the Chinese market. Although this view is only a guess, it is logically sound.
Against the backdrop of pressure on Chinese bonds, it is a good choice to find investors in the international market and issue bonds. As a rating agency, Moody's has a certain say in influencing investors' confidence and decision-making. By downgrading their ratings, Moody's blocked the opportunity for some units to issue bonds on the international market, allowing them to be charged. It can be said that Moody's behavior in this process is a business strategy.
However, as a very influential rating agency, Moody's actions should also be subject to certain regulation and constraints. The rating of rating agencies is of great significance to the credit evaluation of countries and enterprises, and arbitrary downgrading of ratings will affect the country's image and economic development. Therefore, the relevant regulators should strengthen the supervision of rating agencies, maintain the objectivity and impartiality of ratings, and avoid the emergence of abuse of power and financial barriers, so as to maintain the stability of the financial market and a fair competition environment.
In general, there are commercial motives behind Moody's actions, but in the context of China's debt, there are also business opportunities for Moody's. Moody's rating practices should be supervised and constrained by the relevant regulatory authorities to ensure the objectivity and impartiality of the ratings. At the same time, China still needs to explore more innovative ways and mechanisms to cope with the huge debt pressure and maintain economic stability and sustainable development.