Posted on 05/08/2006 7:43:07 PM PDT by Leisler
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.
The revelation shows that half-hearted reforms have addressed merely the symptoms of China's financial fragility. 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. The party can no longer secure the loyalty of its 70 million members through ideological indoctrination; instead, it uses material perks and careers in government and state-owned enterprises (SOEs). 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. The party appoints about 80 per cent of the chief executives in SOEs and 56 per cent of all senior corporate executives. Recent corporate governance reforms, Western-style on paper but not in substance, have made no difference. 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 economic costs of maintaining this patronage system are not limited to perks for individual party members. Since these members are expected to prove their managerial competence, they must deliver or appear to deliver economic results.
This in turn requires the party to provide access to capital, chiefly bank loans, even if these officials undertake non-viable projects.
The result is systemic waste. In particular, because mid-level Chinese officials are under pressure to hit fixed growth targets quickly (the average tenure of a mayor is about three years), they favour projects that may embellish their short-term performance but have dubious long-term value. The proportion of misguided investment is considerable.
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.
Banking reform of the past few years has failed to address these flaws. Its five main features - write-off of NPLs, capital injection, flotation in Hong Kong, minority stakes for Western strategic investors and improvement of corporate governance at headquarters - do not alter the defining characteristics of China's capital allocation system.
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.
The writer, author of China's Trapped Transition, is a senior associate at the Carnegie Endowment for International Peace in Washington
How prosperous is Taiwan?
wait till you see the swimming center, "The water cube".
And China and Russia have teamed up on something called, "Project 149".
149 being the events that china and russia are not normally involved in or favored in any given summer olympics. Their planned goal is to dominate every single event at the games and make sure the USA doesn't recieve more medals than either of them. The chinese and russian olympic teams are even training at the same facilities.
The chinese are pulling out all the stops on their gymnastics and swimming programs. Its you "win gold or your a national discrace" time.
I wonder what a little American boycott would do to all their best laid plans?
And they conveniently gloss over British imperialism (which was extensive and explicitly said as imperialism), French imperialism, and German ones. (Germany before WWI was no saint towards China eitehr, but you won't find the William II-do-to-Chinese-as-historical-Huns speech during the Boxer Rebellion appearing in modern mainland Chinese texts). But many will rise up and denounce the then US SoS John Hay about his "Open Door" policy and Teddy Roosevelt as preparing a subtle strategy to keep China prized for imperialistic expansions from the United States later.
Selective memory, and the first lesson of Soviet/Communist/"liberal"/"progressive" histography is when you learn how P.R. China teaches Chinese history.
Yup!
Let's see how that chart looks 1 year from now.
It could take 6 months for the investment community to catch on.
If they suck Taiwan back into the fold, instant billions in their collective commie pockets.
Did Hong Kong noticeably influence their economy?
It wouldn't matter if they did or didn't. Taiwan's money would be their money.
Lets face it, without the Commies, the Olympics have really lost their luster. Having the side plot of Evil Empires is just plane good TV.
Now, if we could just field some American Athletes, not a bunch of mealy mouthed spoiled pantywaists who don't want to play because skiing just isn't fun anymore.
I admit I have not invested in China. Don't trust them.
There are plenty of chicom government people that have become rich over the Hong Kong capture.
But there is some good that came out of it. Hong Kong has taught the chinese a lot about how to run an proper economy. A capitalistic economy.
For all the foreign businesses and financial institutions who are deeply invested in China, consider: If a man owes the bank $100,000, the bank owns the man. If a man owes the bank $1 billion, the man owns the bank.
Communists, Socialists, and Democrats have the midass touch. Everything they touch economically turns to shite. They always absorb wealth. Seriously, they (party bosses) would blow Taiwan's wealth on comfort girls and formal dinners with freshly sqeazed snakes.
Well, not in a portfolio.....
I tried a couple years ago, to check where my purchases were made, with the objective of avoiding Chinese products.
I soon discovered that it's pretty much impossible.
Ain't that the truth. I believe china has a two tier system, rich political leaders and their businesses and the peasants. Do you know if they have a middle class?
It depends on whom you define as "middle class": I believe about 1/2 or more of the middle class touted by the MSMs are in fact elite cronies. This leaves 1/2 of the touted figures as "truly middle class". They probably live at American blue collar working class levels and yet sociologically they would be more akin to America's upper middle class in comparative scales.
Most of the population would be peasants no doubt.
There is no doubt. This is an alliance of convenience and I think in Russia's minds they are probably viewing this as like their Stalinist predecessor's alliance with Britain and America fighting against the Soviet Union. Once the enemy (i.e. the US) disappears, it will be the time to turn the gun barrels around and fight against China and the EU over the spoils that is the world.
I'd read stories where the peasants were treated like trash by the upper class and that the potential for class war fare wasn't out of the question.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.