China: Reneging on letters of credit
A local government’s dramatic U-turn over its loan guarantee commitments may have averted an immediate crisis, but the damage to China’s reputation in honouring contracts is harder to repair.
The government of a Chinese county caused havoc this month by announcing it was scrapping all the loan guarantees it had given to state-owned businesses working on its behalf. The subsequent uproar forced it to reverse its decision last week, but the fallout could rumble on for some time.
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