Debt Worries Weigh on Chinese Bank Listings HONG KONG - Two Chinese banks that sold nearly $2 billion worth of shares in Hong Kong stock market listings got lukewarm receptions on Wednesday from investors concerned about how China's financial system will cope with a potential deluge of bad debt that could swamp the country's economy. Huishang Bank Corporation, a regional banking group based in eastern Anhui Province, priced its initial public offering at the bottom end of the marketed range on Wednesday, raising 9.2 billion Hong Kong dollars, or $1.19 billion, according to two people with knowledge of the deal, who declined to be identified because the information was not yet public. Also Wednesday, shares in Bank of Chongqing closed slightly down on their first day of trading after the company raised 4.2 billion dollars in a share sale. Although both banks had boasted net profits that grew at more than 25 percent annually during the past three years, and had reported bad loan levels that were well below the industry average, they were able to list only after pricing their shares at practically no premium to the value of their assets. That implies investors are skeptical about the quality of the loans on the banks" books and their ability to increase future profits - an extension of a growing wariness toward Chinese banks and a reflection of broad doubts about the health of the country's financial system. "There are growing concerns that the government is becoming less tolerant of egregious lending, and that examples may be made among smaller or poorly capitalized lenders," said Ben Simpfendorfer, an economist and the managing director of Silk Road Associates, a financial consulting firm in Hong Kong. Those fears may play out across the sector more generally. In the five years since the global financial crisis, China's economic resilience has been driven by a doubling of bank lending and the rapid rise of so-called shadow banking. Local governments were responsible for much of that borrowing, as they plowed money into hulking infrastructure or pet projects in an attempt to create jobs and increase gross domestic product. Now, as growth slows and the new leadership in Beijing searches for ways to rein in wasteful investment and reckless lending - topics that analysts say are on the agenda of a key Communist Party planning session that begins Saturday - some analysts and investors see big trouble ahead, especially for the financial institutions that bankrolled local government spending sprees. Because local governments in China are banned from taking loans or issuing bonds directly, and cannot guarantee such debt, they have relied on specially created holding companies called financing vehicles. At the end of June, total bank debt accumulated by these local government financing vehicles amounted to 9.7 trillion renminbi, or $1.6 trillion - equal to about 13 percent of all bank loans in China, according to a report published this week by Moody's Investors Service, a credit rating agency. Moody's surveyed nearly 400 local government financing vehicles in June, concluding that only 53 percent of them had enough cash available to meet their debt and interest payment obligations in 2013 without resorting to refinancing - or taking on new debt to pay off the old. "The standalone financial profiles of many L.G.F.V."s are very weak," the ratings agency concluded. Ted Osborn, a partner at PricewaterhouseCoopers in Hong Kong who specializes in restructuring bad debt, described the problems at small city commercial banks and regional banks as "the biggest issue that China needs to overcome." "The big banks will of course always be supported by the government, but if you take a look at these smaller banks, they have lent probably half of that financing to the local government vehicles," he said Tuesday at a financial forum in Hong Kong organized by the law firm Latham & Watkins and the Asia Securities Industry & Financial Markets Association. Mr. Osborn cited a side effect of a wide-ranging anticorruption campaign China is conducting at the behest of President Xi Jinping: The many midtier government officials who have been implicated are often the same people who approved and directed the loans to local government projects that are raising concerns among investors. "If these loans are bad and more loans go bad than expected, these smaller banks don't have the capital - and don't have the ability to raise capital - that the larger banks have," he said. That's where I see a potential crisis growing somewhere down the road.