Some Chinese firms turn out to have lied about their state pedigree

IT CERTAINLY SOUNDS pretty powerful: China Nuclear Engineering Construction Group. Once controlled by the People’s Liberation Army, it is now, it says, part of a “central state-owned enterprise (SOE)”, an elite class of firms belonging to the Chinese government. Its website is full of pictures of its executives signing deals around the country. Like any good state-run giant, it is politically correct, its statements echoing Communist Party slogans. There is just one snag: China Nuclear Engineering Construction Group is not a central SOE.As China’s economy slows, defaults have risen sharply. Such failures, though painful, separate strong companies from also-rans, a process other countries know well. In China there is an extra wrinkle: the downturn is also exposing fake SOEs. These are companies that misled creditors about their state connections to suggest they would be supported if they ran into trouble. But when trouble arises, the government is nowhere to be found.
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