China has been needling the US over its government debt and the boss of its state-controlled rating agency Dagong, even accused Washington of default by encouraging devaluation against the Chinese yuan. But meanwhile one of the biggest Chinese-owned enterprises is reneging on contracts, so far with impunity.

Unpaid charter fees owed by the state-owned China COSCO Holdings.China's biggest shipping company, have resulted in recent attempts by shipowners to arrest the ships. The vessels involved are bulk carriers, the spot charter rates for which collapsed leaving COSCO with a large gap between what it pays owners for long term charters and its own activity in the volatile spot market. At least one COSCO-leased ship has been seized in Singapore and further seizures have been threatened.

To a certain extent, COSCO’s problems are China’s problems. With an economy dependent on exports to the west and both the Eurozone and the United States appearing to be headed back into recession with few tools to stimulate spending, operating conditions in China’s production sector are worsening. Factors include the yuan’s continuing rise against the US dollar, soaring raw material prices, stubborn inflation and rising wage demands.

Reuters reported that many of the contracts that COSCO is seeking to renegotiate were signed when the industry’s largest bulk carriers were being rented for more than US$100,000 per day. The dry bulk market has now plummeted. Given the glut of vessels, they are now being rented for an average of US$18,000 per day

But apparently Chinese state companies do not believe in contracts and as soon as markets turn against them, they seek refuge in a mixture of nationalism and claim to be defending shareholders’ rights. In this case the ultimate shareholder is the Ministry of Communications in Beijing. COSCO has lots of separate parts, some of which are listed on stock exchanges. But all of them are ultimately subsidiaries of the overseeing ministry. Clearly if the ministry will not back the contracts of its subsidiaries, its own credit should be massively downgraded. Imagine if the US government had not bailed out Fannie Mae, its state-owned but nominally independent mortgage lender? The whole world financial system would have collapsed.

Dagong meanwhile has proven its loyalty to the Chinese state by giving an AAA rating to the Ministry of Railways despite its massive debts, huge operating losses, forward commitments and numerous subsidiaries which are no more likely than COSCO to want to pay up on contracts they unwisely entered into when commercial conditions were more favorable.

To make matters worse, China COSCO, a Hong Kong listed part of the group, has casually announced that “adjustment of hire rates” was part of its “normal operations”. In other words, every contract with this state owned enterprise is only valid so long as it works in China’s favor, or the favor of the frequently corrupt officials who signed it in the first place.

That COSCO has been able to build its fleet so fast is largely thanks to the assumption that its credit was ultimately backed by the state. Now the world’s shipping industry is finding not only that this is not the case but that COSCO is scarcely a more reliable business associate than a Somali pirate – grab what you can while you can and if the market goes sour throw the creditors overboard.