Sunday, 3 October 2010


Those Greeks currently cheering about the prospect of China buying Greek bonds, and who cite this as evidence that we are not going to default after all, should remember that China now has its own credit rating agency, Dagong Global Credit Rating.

Dagong issued its opening salvo of credit ratings to great consternation a few weeks ago, and these are summarised here. Scroll to page 11 and you will find that Dagong actually thinks Greece's debt is rated too leniently by the Western credit rating agencies which our FinMin so reviles. The Chinese actually assign us the same credit rating as Nigeria... in which they also have substantial investments.

If one considers inflation as a means of default, I would argue that the ratings are not too bad actually - the Big Three are a little bit too sensitive about downgrading major economies, and took months to catch up with the market in the case of Greece. Moody's in particular are so far behind they are laughable.

Indeed, Dagong does consider default by inflation to be default:

"Regarding the partial default, it is worthwhile to take note of the hidden default via malicious devaluation of domestic currency. In extreme cases, a government might choose to let domestic currency depreciate for part relief of its debt burdens. When it happens, if the contract does not have any arrangement to offset currency value fluctuations, such as adopting floating interest rates or indexed interest rates, and the government does not announce any measures to preserve the value of the bond, even if the government repays the debt in full and on time, we still consider the bond to be in default."

Dagong's full rating methodology is elaborated here.

At any rate, the string of deals the Chinese signed with Yorgo is cleverly put together and even more impressively Premier Wen Jiabao's speech to our Parliament was 100% spot on. He was probably briefed to tell our parliamentarians something about ancient Greece, produce a quote, say that China will continue to participate in our bond offerings (i.e. bid for some of our bonds if and when we next go to the markets), and then leave the Greeks to pat each other on the back and go talk business with whoever's in charge of privatisations.  I bet even the officials who prepared this speech cannot believe how well they had our press figured out.

Speaking of the Chinese, Greece-watchers may not be aware of the horse-trading we have done with China over the years. For instance, did you know that Greece does not acknowledge Taiwan as an independent state, but only as a province of China?  No? Neither do 99.9% of Greeks. Sure, there may be historical and legal reasons for taking this approach (more here and here), but I note that our position is much stronger than that of other nations who merely 'take note of' or 'acknowledge' the Chinese position on this, or who 'do not support' rather than 'oppose' Taiwan's arguments on independence.

Apparently all of the above comes as no surprise to people familiar with this long-running dispute but I'm new to this and I'm still holding my jaw up. Our statesmen may want to remember this the next time we bleat to the global community about how credit rating agencies and the FT are playing with our national sovereignty for money, or when we complain about people not siding with us in the Macedonian naming dispute due to geopolitical or economic concerns: we're happy to do the same to others.This is just the way the game is played - we should learn to live with it.

UPDATE: Turns out the Chinese have given us one further vote of confidence. 3.7% fewer of them visited Greece in 2009.

UPDATE 2: I spoke too soon - 83% more Chinese nationals visited Greece in 2010

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