Moody's Investors Service, Standard & Poor's and Fitch Ratings can't be happy. The world's credit-rating giants got scooped on the biggest rating decision: whether to strip the US of AAA status. Worse, the US was downgraded by a company that few people have ever heard of, and a Chinese one at that.

While Moody's and S&P ignore the wreckage that America's finances have become, Beijing-based Dagong Global Credit Rating is uncorrupted by the system that enables developed-world debt addicts to appear fiscally clean. It rates US debt AA, two levels below the top grade.

Dagong is right to turn the world of A- and Baa1 on its head even though rating China higher than the US is hubristic at best. Anyone who thinks China deserves a top rating or is devoid of debt landmines isn't looking very hard.

In its first foray into sovereign problems, Dagong raises some vital questions. One is whether ideology in favor of the West has more to do with ratings than the ability of governments to repay debt.

An alien arriving from outer space might take one look at America's balance sheet, conclude it's an emerging nation and buy Indonesian debt instead. The same goes for Japan and its demographic time bomb. France, Germany and the UK possess challenges that might necessitate lower ratings if true objectivity were to enter into the mix.

It has been a humbling 15 years for credit raters. They completely missed the 1997 Asian crisis. They were asleep at the controls as the dotcom bubble burst. They lavished top ratings on junk and helped turn the US subprime crisis into a global one. They were slow to fathom Europe's debt fiasco.

Dagong chairman Guan Jianzhong is absolutely right when he says: "The essential reason for the global financial crisis and the Greek crisis is that the current international rating system cannot truly reflect repayment ability."

It's the right message, wrong messenger. Hedge-fund managers aren't betting against China gratuitously. It's in no one's interest to see the third-biggest economy crash. The idea that China's national balance sheet is sound is a reach, though. In the first half of this year, Chinese bank lending was 28% higher than official numbers suggest, Fitch says. The reason: more and more loans are being repackaged into investment products, distorting the data.

Repackaging loans and moving them off the balance sheet is exactly what got corporate America into trouble and almost killed Wall Street. Such practices raise the odds that China is paving the way for a wave of bad debts.

Bloomberg