Official newspapers quoted the vice-governor of Guangdong province as saying that the bankruptcy of one of China's largest foreign borrowers, the Guangdong International Trust and Investment Corp (Gitic), marked a new era for window firms.

"The historical role of window companies has ended," the Special Zone Daily quoted vice-governor Wang Qishang as telling diplomats in Guangdong's capital of Guangzhou.

"From now on all types of enterprises must establish their own credit through market competition," he said. China's central bank shut down Gitic in October last year because it was unable to repay foreign debt. The company filed for bankruptcy last month, citing debt of 36.17 billion yuan ($4.37 billion), against assets of just 21.47 billion yuan.

Foreign bankers said Gitic's closure taught thema harsh lesson on lending to Chinese firms assumed to have iron-clad government backing.

"Foreign banks have already found out the hard way that they cannot rely on the window companies," one Shanghai-based banker said.

"Now, whenever a bank lends money to a window for a Chinese entity, it will really look at the entity and really look at the cash flow to see whether they can pay back," he said.

But not all of Guangdong's window companies will be bereft of state support. Wang said he was confident that a plan to prop up the ailing Guangdong Enterprises (Holdings) Ltd (GDE) would be successful.

The sprawling conglomerate with five Hong Kong-listed units revealed last month that it had debts of $2.942 billion, far exceeding analyst's estimates.GDE had come under heavy pressure from the Asian financial crisis, "but despite all these problems, I can responsibly say that we are confident of the restructuring plan," the official Xinhua News Agency quoted Wang as saying.

Wang said that GDE was in farbetter financial shape than Gitic, and added that the trust firm's failure had been to due to laxity of both the company and its lenders.

Instead of thoroughly assessing the repayment abilities of Chinese companies, foreign lenders pushed risk onto the shoulders of local government guarantees and comfort letters, he said.

"Even though they assumed these promises amounted to sovereign credit, they defied international practice and charged interest rates that were far higher than the cost of capital to sovereign credit," Wang said.While Wang urged foreign banks to lend to companies based on their own fundamentals rather than implicit government backing, bankers noted that this was easier said than done.

"Right now it's almost impossible to judge creditors in China," one banker said. "You cannot rely on SAFE and you cannot rely on the annual reports of Chinese companies," he said, referring to the State Administration of Foreign Exchange, China's foreign-currency watchdog.

"Since banks right now don'thave any way of assessing creditors, there's no reason to lend," he said.