Here is an interesting pair of stories at odds with each other, the first article is about problem loans at Chinese banks, the second is about a rating agency mud fight.



Bloomberg reports Chinese Banks See Risks in 23% of $1.1 Trillion Loans



Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation’s regulator.



About half of all loans need to be serviced by secondary sources including guarantors because the ventures can’t generate sufficient revenue, the person said, declining to be identified because the information is confidential. The China Banking Regulatory Commission has told banks to write off non-performing project loans by the end of this year, the person said.



The nation’s five-largest banks, including Agricultural Bank of China Ltd., plan to raise as much as $53.5 billion to replenish capital after the sector extended a record $1.4 trillion in credit last year.



“In China now, it is the same as the people getting loans in Phoenix here in the U.S. three years ago,” said Vikas Pershad, chief executive officer of Chicago-based Veda Investments LLC. “People who want money get money, and then they all lose track of it.”



Local governments set up the financing vehicles to fund projects such as highways and airports due to limits on their ability to directly borrow money. The central government this year restricted borrowing on concern money isn’t being used for viable projects.



“The issue is symptomatic of the way the stimulus package was rolled out in 2008,” said Nicholas Consonery, Asia specialist at the Eurasia Group. “It is difficult for local governments to finance these projects. It is written under the Chinese constitution that local governments cannot offer their own debt.”

Chinese Rating Agency Criticizes Moody's, Fitch, S&P

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.



“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. “China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”



On the corporate side, Mr Guan argues Moody’s Investors Service, Standard & Poor’s and Fitch Ratings – the three companies that dominate the global credit rating industry – have become too close to the clients they are supposed to be objectively assessing.



Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.



The results were very different from those published by Moody’s, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong’s belief that China is more politically and economically stable than all of these countries.



“The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said. “Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”



A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.



But even if the company can overcome reluctance from US regulators it may have a hard time convincing international clients that it is more objective than its western peers, especially considering the overtly nationalistic tone it strikes at home.

Pot Calls Kettle Black