Guangdong International Trust and Investment Corp (GITIC) was the main Chinese Financial institution approved for the GSM-102 programme of the US Department of Agriculture (USDA), which protects US exporters when importers or their banks fail to meet their obligations.

The $200 million programme to China for fiscal 1999, beginning September 1998, has been suspended since the Chinese authorities closed GITIC on October 6.

Plans to push GITIC into bankruptcy were announced on Sunday, and the US government was effectively put in the queue of creditors to recover funds under China's bankruptcy law.

But banking sources said the GSM credit guarantee programme was likely to be reinstated independent of GITIC. "It was unclear from the meeting (on Sunday between GITIC and its creditors) if the USDA would be treated differently," a source at a foreign bank said. "But dealing with sensitive repayments, some leeway for intervention by the Chinese government is possible."

The US side was seen eager to play down the GITIC debacle in order to resume GSM export guarantees, he said. A USDA official in Washington said on Tuesday that the GSM-102 programme could be reinstated if the US excludes GITIC from the list of eligible lenders in China's GSM-102 agreement.

He added that he did not know the status of efforts to reinstate the programme. A Beijing representative of an international grain trading firm said the Chinese government had taken care to isolate GITIC's default from the operations of other provincial trust companies.

"The Tianjin ITIC, for example, has honoured 100 per cent of its obligations," he said. "Guangdong is treated as a special case."

China's grain trade is mainly conducted with state or provincial entities, but the bulk of the GSM credits to GITIC were extended to new food processing joint ventures in southern China, a grain trading source said.

In addition, the Chinese government was reluctant to assume responsibility for GITIC's Hong Kong subsidiaries, a US-China trade expert said.

Of the $68.7 million outstanding GSM credits to China in fiscal 1998, $29.7 million was contracted through the GITIC office in Hong Kong, she said.