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Posted by Hupese Omack9226 2006-05-08 17:50||
Front Page|| [143 views since 2007-05-07]
#1 A top-heavy list of gems from the article:
ESTIMATES of the growing pile of non-performing loans (NPLs) in China appear to have caught many by surprise, especially because Beijing's efforts to clean up its rickety state-owned banks were thought to have greatly reduced NPLs and the risk of a full-blown financial crisis.
According to Ernst & Young, the accounting firm, bad loans in the Chinese financial system have reached a staggering $US911 billion ($1.18 trillion), including $US225 billion in potential future NPLs in the four largest state-owned banks.
This equals 40 per cent of gross domestic product and China has already spent the equivalent of 25-30 per cent of GDP in previous bank bail-outs.
... Poor business practices are blamed for NPLs but the real source is political. As long as the communist party relies on state-controlled banks to maintain an unreformed core of a command economy, Chinese banks will make more bad loans.
Systemic economic waste, bank lending practices, political patronage and the survival of a one-party state are inseparably intertwined in China. ... That is why, after nearly 30 years of economic reform, the state still owns 56 per cent of the fixed capital stock. The unreformed core of the economy is the base of political patronage.
Government figures show that, in 2003, 5.3 million party officials held executive positions in SOEs [State Owned Enterprises]. The party appoints about 80 per cent of the chief executives in SOEs and 56 per cent of all senior corporate executives ... At 70 per cent of the large and medium-sized SOEs ostensibly restructured into Western-style companies, members of party committees were appointed to the boards. Painful restructuring appears to have spared this elite. China has shed more than 30 million industrial jobs since the late 1990s but few party officials have become jobless.
The World Bank estimated that in the 1990s about one-third of fixed investments made in China were wasted. The Chinese central bank reported that during 2000-01 politically directed lending accounted for 60 per cent of NPLs. Such disregard for economic efficiency has bred a culture of irresponsibility and unaccountability in Chinese banks.
In a survey of 3500 bank employees in 2002, 20 per cent reported that no action was taken against managers even when their mistakes resulted in NPLs; an additional 46 per cent said their banks made no efforts to uncover bad loans.
More than 80 per cent said corruption in their branches was either prevalent or took place quite often.
Nearly all senior bank executives are appointed by the party, which maintains an extensive organisational network within the financial system. That is why an IMF study finds no evidence that these reforms have improved risk management and credit allocation by banks.
Now, compound this financial crisis with what will gradually emerge as the World's Largest Medically Caused AIDS Epidemic [Google "HRIC Henan AIDS"], a potential oil shortfall (if Iran goes off-line), the shortage of marrigeable women, avian flu plus another one of their all too common famines and civil war or something much uglier could easily arise.
China is a monstrous Humpty-Dumpty poised for Omelet City.
Posted by Zenster 2006-05-08 21:35||
#2 Ouch. Nice summation, Zenster.
Posted by trailing wife 2006-05-08 22:26||
#3 They're commies trying to do capitalism under commie rules. That always works well.
Oh, well. Just print more money...
Posted by tu3031 2006-05-08 22:33||
#4 Dodgy loans and the bursting of the land bubble sent Japan into recession for fifteen years. It just started coming out of recession a year ago. Japan is a democracy, and the recession caused a change of government.
China is totalitarian state and the Chinese government's overriding goal is to maintain their power indefinitely. If China plunges into recession, the government will need something to take the people's minds off their economic woes. That will not be a good thing for anyone else in the region.
Posted by DMFD 2006-05-08 23:14||