The incident mars China's triumphant return to the Japanese Samurai market this week and raises old fears about the strength of its financial institutions, bankers said. Hitic, owned by the government of China's southern province of Hainan, was due to make an interest payment to holders of its 14.5 billion yen worth of Samurai bonds on Monday, underwriters said."It's a technical problem," said a Hitic official, who declined to be named. "The grace period is 14 days." But he declined to say whether or not the trust would actually make the payment.

The bond will be considered in default if the firm fails to pay interest within 14 days from the scheduled coupon payment date of June 26.

The seven-year bond, which has a coupon of 5 per cent, was issued on December 26, 1994.

"It's true that the company has failed to meet its coupon payment obligations," said one Japanese source close to the deal. "At the moment, we are looking for information." China's vice minister of finance, Jin Liqun, was quoted by Japan's Nihon Keizai Shimbun newspaper on Wednesday as saying the central and local governments would ensure payment, which would be made soon. The news comes just after China returned to the Samurai market for the first time in five years on Tuesday, offering 30 billion yen worth of five-year bonds to a ready market.

The market for Chinese corporate bonds is still labouring under the shadow of the Guangdong International Trust and Investment Corp, which filed for bankruptcy in January 1999 with some $4.7 billion in debt, bankers said.

-- (Reuters)