Posted on 08/18/2004 6:58:47 AM PDT by TigerLikesRooster
| Radio Free Asia | Aug 17, 2004 |
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| A pedestrian walks past the Bank of China tower in Hong Kong, 03 August 2004. China’s central bank governor has warned that the country is “at the edge” of a financial crisis as bad debt levels continue to rise. (SAMANTHA SIN/AFP/Getty Images) |
HONG KONG -- China’s central bank governor has warned that the country is “at the edge” of a financial crisis as bad debt levels continue to rise. Speaking at a financial conference last month in Shanghai, People’s Bank of China Governor Zhou Xiaochuan said he was pleased to hear that other experts had also recognized the scale of China’s bad debt problem.
“I believe that while large-scale commercial banks are working hard, according to certain classification, their bad debts have already exceeded 40 percent, so we are at the edge of a financial crisis,” Zhou told delegates at the conference in early July. “It’s not as though you can avoid or predict it if you so desire.”
Other top financial scholars and policymakers underlined his warnings during the same session.
Wu Jinglian, deputy director of the Committee for Economics Affairs of the Chinese People’s Political Consultative Conference and chief economist of the State Council Development Research Center, said China had two years in which to put its financial house in order.
In a keynote speech titled “The Urgency of China’s Financial Reform,” Wu said there were two years left in the five-year transitional period following China’s accession to the World Trade Organization (WTO). At that time, China has to open up its entire Renminbi (local currency) banking industry to foreign-owned banks, posing enormous challenges to the struggling financial system.
The creation of the China Banking Regulatory Commission (CBRC) in April 2003 gave official recognition to the scale of the problems besetting China’ banking system.
Bad loans made by banks to cronies in government departments and state-owned enterprises continue to proliferate in spite of a government bailout in 1999, and the creation of asset-management companies (AMCs) to dispose of U.S.$169 billion in bad debt.
Estimates of the total level of bad debt throughout the banking system vary, but overseas ratings agencies have estimated it as high as 50 percent. The big four state-owned commercial banks continue to report increases in non-performing loans, in spite of several years of guidelines from central government urging prudence and professionalism.
“The main challenge the deregulation of foreign-owned banks poses to Chinese banking system is that if the deposits are captured by foreign-owned banks, resulting in state-owned banks’ loss of these rare assets,” Wu told the conference. “Then a financial crisis may appear.”
Wu said the Chinese financial system still contained black holes, and the apparatus that causes them still exists. He lashed out at the use of the country’s fledging financial markets as a sort of state-sponsored bonanza for enterprises and government officials.
“China’s use of the stock market to finance its state-owned enterprises has made it a financing tool that tilts in their favor,” Wu said.
He said the state used such tactics as giving out news to stimulate the market, restricting the number of investors, and splitting shares to inflate the issue price of companies that have privilege of forfeiture so they can raise funds from floating shareholders.
“By doing so, they have turned our stock market into a huge administrative factory that lacks investment value,” Wu said.
Tong Guoqing, deputy mayor of Shanghai with responsibility for financial management, said, however, that Shanghai planned to make the grade as the world-class financial center.
“We want to stride forward as a world-class financial center and develop among other countries. We hope that the financial crisis…will not occur. If so, then China's development can be greatly advanced," Tong said.
Ping!
Such a crisis may well drive them to action. With such a totalitarian regime they have will to have something external for the people to focus on as opposed to their own inernal problems.
Can you imagine the number of bill collectors they can send, to collect that US $169BILLION debt?
He said the state used such tactics as giving out news to stimulate the market, restricting the number of investors, and splitting shares to inflate the issue price of companies that have privilege of forfeiture so they can raise funds from floating shareholders.
“By doing so, they have turned our stock market into a huge administrative factory that lacks investment value,” Wu said.
(snicker) How different is this from the way our stock market operates? (i.e. PPT, automatic trading, etc.) One thing is for sure...if China goes down economically, we go down as well; be it for a short period of time or longer...depending on how long we can find another cheap labor/cheap currency plaza nation to buy all the cheap stuff at Walmart. Something tells me the central planners in Bejing will not let this happen.
Our part will be in a bloody fight to contain them should they decide they can stand to lose a few million of their young men who have no hope for marrying anyway. In order to deflect blame and unrest from the financial crisis, they very well could send their fodder to the meatgrinder.
It's almost like the scenario from Tom Clancy's novel The Bear and the Dragon.
For once we'll be happy to hear the word, "India." Their labor is cheap, so our toys will remain cheap. Meanwhile, China will have to grow up and learn some Western ways, such as business ETHICS! India was developed by the British, hence they are miles ahead of the Chinese when it comes to Western banking practices, etc.
...which I began writing 3 1/2 years ago.
Yep, a double edged sword. If they have a strong economy they build more weapons, if it collapses they could strike out.
It seems that communist agrarian/hand labor economies just can't survivie.
WHat is scary is that Asian countries such as China own alot of the US's debt. If they start to view us as a "bad credit risk" the manure will hit the wind moving machine.
Indeed, how are we going to live without all of the Chinese Buffets that have proliferated here? Is this part of their master plan, do you think?
Our debt isn't a risk, it's their debt.
I am afraid we would find out just how many sleepers and sappers we have within the perimeter.
Hmm, I suppose I need to read the article again. But that does bring a question, how are they buying some of our debt if they are in trouble themselves?
They invest in our debt with their "safe" money.
For over a year in class I have been talking with students about whether China is a bubble waiting to pop. If everyone knew for sure that it was, it never would have become a bubble in the first place, so it's an interesting problem.
Hate to seem like a novice (in macro economics at this scale I am) but what is safe money?
If we all stopped buying Chinese goods for 30 days would it bring them down?
Their conservative rather than speculative funds.
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