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I hope that China’s Dagong Global Credit Rating, the largest credit rating company in China didn’t think that Standard & Poor’s, Fitch Ratings, and Moody’s were going to sit quietly and take it after its head Guan Jianzhong called them names.

If you missed it, last week he said, “The western ratings agencies are politicized and highly ideological and they do not adhere to objective standards.”

Almost immediately Standard & Poor’s shot back with the financial world’s equivalent of “So’s your old man!”

It’s highly likely, Standard & Poor’s said on July 22, that some loans to local government financing vehicles will turn bad over the next few years. Even though bank loans to these vehicles account for 18% to 20% of total bank lending, S&P said that, at this time, it had kept its “stable” outlook on China’s banking industry, saying it had sufficient strength to cope with the bad loan problem.

Of course, the implication is that someday S&P could find China’s banks didn’t have sufficient strength and could get downgraded to “credit watch,” or worse.

The quality of loans offered last year to support government stimulus is “probably one of the weakest in recent years,” Ryan Tsang, a senior S&P director, told a video conference. Many of the projects funded are not commercially viable.

The non-performing loan ratio at China’s banks will stay below 10% until the end of 2012, S&P estimates. That would be a huge increase from the estimated 3% to 4% rate currently. Standard & Poor’s 3% to 4% estimate is well above the 1.3% ratio reported by China’s banking regulators at the end of the second quarter.

China’s official figures don’t include policy banks and rural cooperatives; S&P’s estimates do.

Your turn, Dagong Global Credit.