China ratings agency issues warning on US debt

Chinese credit ratings agency Dagong said Thursday it had put US sovereign debt on negative watch for a possible downgrade -- following a similar move by Moody's the previous day. The announcement came as US lawmakers try to hammer out a deal that would allow President Barack Obama to raise the country's debt ceiling, which in turn would allow it to meet its repayment obligations and avoid a default. Moody's Investor Service on Wednesday placed the United States' triple-A rating on a downgrade watch because of rising prospects the US debt limit will not be raised in time. Dagong followed suit, saying the ability of the United States to repay debt was likely to decline given its economic growth was expected to slow and fiscal deficits to remain high in the next couple of years. "Various factors that affect the repayment ability of the US federal government will keep deteriorating," it said in a statement. "Dagong will downgrade the US sovereign ratings if there is no substantive improvement in its repayment ability and willingness within the period of observation." Republicans are refusing to lift the country's $14.29 trillion debt ceiling without deep government spending cuts, while they reject Democrats' demand that tax increases must be part of any sweeping deficit reduction plan. A downgrade could sharply raise US borrowing costs, worsening the country's already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments. China is by far the top holder of US debt, with holdings at $1.153 trillion in April, according to US data. Dagong has made a name for itself by hitting out at its three Western rivals -- Moody's, Fitch and Standard & Poor's -- saying they caused the financial crisis by failing to properly disclose risk. The Chinese agency, which is trying to build an international profile, has given the United States and several other nations lower marks than they received from the the big three. It downgraded US sovereign ratings to A+ from AA in November after the Federal Reserve announced plans to inject $600 billion into the struggling US economy.