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Something missing about China's banks
China's economy survived without any bank of western definition from 1949 to the early 80's. Their banks were no more than public safe boxes and the government's institute to collect and distribute money which functioned like rationed coupons. The loss and gain were never measured in terms of market value.
After the economic reform took place in the early 80's, the public's thirst for money surged dramatically nationwide. Unlike the westerners who could use credit cards to make advanced use of their future income, many
As the free market economy grows and the government pushes some of the banks to go public on the international stock market, the banks suddenly find themselves in trouble -- they now need to make loans and collect them with a profit to satisfy their shareholders. All the bank loan officers are complaining it is very hard to find enough qualified borrowers to digest the tons of funds waiting to be loaned. Since the early 2000's, the loss has started to trim down, but caused widespread deflation. The government has to park its huge foreign exchange reserves in the low yield U.S. T-bills due to the lack of profitable domestic use.
Currently, China's state-owned enterprises are the black hole of fresh bad loans. The U.S. government uses social work offices to distribute social welfare checks to the needy; by the same token, the Chinese government uses the banks to keep those enterprises alive to feed the workers who otherwise would be laid off. The government likes to put all those uncollectible 'loans' under the banks' name to avoid becoming direct target of mismanagement complaints. The question comes down to whether the banks should be accountable to the government or to the shareholders on the profit issue.
There has been an emerging public demand for the government to take over the social welfare task from the banks recently. As usual, the Chinese government is much more concerned about unemployment and social control than about bad bank loans. As long as the economy keeps growing and the government stays in control, most of the bad loans will be replaced by new saving deposits from private sector and newly issued bonds.
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