As the fallout from the closure of Guangdong International Trust and Investment Corp (Gitic) spreads, there is growing resentment in the banking community over Beijing's delay in forming a policy on treating creditors. The mainland is keen to end a credit system that ran on a loose combination of political clout and financial viability. Gitic's closure serves as the most tangible example of Beijing's determination to deal with this problem. However, the decision to bail out insolvent Guangdong Enterprises (Holdings) (GDE) sent a conflicting signal to the international banking community about the central government's intention to establish a credit system for corporates in line with international practice. It has also undermined Beijing's stated resolve of divorcing government from business, bankers said. Guangdong executive vice-governor Wang Qishan has reasoned that Gitic was a non-bank financial institution and fell outside the jurisdiction of the Guangdong provincial government. The statement raises a number of questions. Do non-bank financial institutions run a higher risk of being closed or liquidated? And a pledge by the Tianjin government to support its international and trust corporation to repay foreign debts has highlighted doubt over whether provincial governments are allowed to make such commitments given Beijing's ban on government guarantees and its policy of separating government from business. Is this the emergence of a system under which only a select few companies will continue to enjoy government support? If the Guangdong provincial government decides to give a helping hand to GDE, will there also be last chances for other non-financial institution investment arms of provincial governments? Who will have the authority to decide whether these companies deserve a last chance or not, and on what basis? Without clarification on these issues, what principles should the international banking community use in lending to mainland corporates? Before the demise of Gitic, mainland lending had largely been 'name lending' with credit risk based on the estimated level of support from the respective governmental parent. As Mr Wang pointed out, it was neither real corporate credit as defined in a market economy nor sovereign or government credit. With the closure of Gitic, the old system was effectively shattered. The problem now is that no new system appears ready to be put in its place. The mainland government seems to have underestimated the 'G-shock' of the Gitic shutdown and has not done enough to minimise the casualties at other Guangdong-based Itics and GDE. Banks deserve some blame for their less-than-prudent lending - or lending that is not in compliance with mainland laws and regulations. But as some bankers have noted, it is almost impossible to conduct a thorough and meaningful credit analysis for mainland lending. Accounting standards on the mainland, apart from those for listed companies which come close to international practice, are not well-developed. This and low transparency pose a minefield for foreign banks, which often find it difficult to estimate hidden liabilities. For instance, Gitic was said to have 132 firms under its umbrella, with assets of 35.8 billion yuan (about HK$33.29 billion) and liabilities of 31.4 billion yuan before its closure. However, it was later found to have 240 firms, with assets of 21.4 billion yuan and liabilities of 36.1 billion yuan. And then there are other mismanagement problems and suspected fraud issues, as in the case of Guangnan (Holdings), the listed food-distribution arm of GDE, and Yi F Trading, the Hong Kong window company of Hubei provincial government. These have combined to undermine foreign banks' confidence in mainland lending, resulting in an indiscriminate credit squeeze on mainland firms. The souring sentiment has already been seen as a major cause for failed equity issues by two H-share listing candidates this year. As long as these issues remain, there appears to be no end in sight to the trend of mainland corporates being liquidated. The forced liquidation of Guangzhou Finance last week, the Hong Kong finance arm of Guangzhou International Trust and Investment Corp, was the fifth instance of a commercial vehicle of a mainland government agency to be put into bankruptcy. Meanwhile, the international banking community keenly awaits word from Beijing on where it intends to go.