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
They wouldn't have a snowballs chance in hell, if it weren't for 33% of the US, and their representitives in government, who hate themselves and would rather see China rule than Pax Americana.
Knitting a conundrum?
LOL, it looks like a hippie's knitted hat...
(It certainly is a paradoxical, insoluble, or difficult problem; a dilemma)
The elites and their cronies are pretty hated by the ordinary peasants because they got comfortable over guanxis (relationships - I understand networking works in the West as well, but in China itself it is the only way you can get something done). These cronies got their first capitals from "unspecified sources" i.e. government "loans" or whatever. They then used speculations to snowball their gains.
I have no idea if the "true" middle class is really hated. My sis-in-law's family is one of them. Her dad refuses to take bribes over time again and again, and so he couldn't make it to the CEO of a steel-making corporation's division in one major city.
Anyhow, I think it would be wishful thinking to expect the first and most of the second group to support US policies to promote democratizations. They are effectively more akin to the elite supporter groups in most of the non-Islamic middle Eastern nations or Latin America. They have no trouble sending their kids to America for study, but they would no doubt see their interests are vested with the Commies.
Their biggest military asset is cannon fodder.
How many young men do they have that will never get married? They have to give them something to do...(cold showers?)
I doubt if their wet dreams would even come true, even if the 33% self-loathing faction gains dominant control. The PRC and Russia vastly underestimate the US military's fighting spirits and capabilities. Victor Davis Hanson once said that he read the much-touted "Unrestricted Warfare" book from two Chinese PLA generals, and he thinks these generals are "too simple, too sheltered, a bit too naive" over what the US can do.
Soon that will read
The Chinese and Russian military are even training at the same facilities.
That reminds me of the way the Soviet Union once operated.
These cronies got their first capitals from "unspecified sources" i.e. government "loans" or whatever.
Are these the same types of 'LOANS' that are china's headache talked about in the article?
My sis-in-law's family is one of them. Her dad refuses to take bribes over time again and again, and so he couldn't make it to the CEO of a steel-making corporation's division in one major city.
Good for your SIL's family.
They are effectively more akin to the elite supporter groups in most of the non-Islamic middle Eastern nations or Latin America.
If their economy goes down the toilet in the next few months, they may again find themselves part of the underclass.
In a war of attrition china has the upper hand. I could be wrong on that, but, I don't think so.
Are these the same types of 'LOANS' that are china's headache talked about in the article?
Some part of them is. For instance, have you heard of Zhou Zhengyi who was once touted as Shanghai's richest man? He got caught in 2003 when Hu Jintao just came in power, but he was so protected by Jiang Zemin's cronies party secretaries that he managed to escape the death penalty and even life imprisonment. He got rich first in 1993 when he got the first capitals from Liu Jinbao, who was then one of the managers of the Bank of China in Shanghai "under mysterious circumstances". Liu Jinbao of course became the chief executive of BOC in Hong Kong but he got caught in 2002 over "financial crimes".
A very sanitized account of Zhou Zhengyi is here:
Other loans include provincial/municipal governments subsidizing land and development costs for foreign investments, and loans for all the impressive infrastructures you see from Guangzhou to Shanghai, from Harbin to Chongqing. And of course money ordered to be loaned to sustain the loss-making SOEs which most Westerners already know.
That reminds me of the way the Soviet Union once operated.
Things were exactly like the Soviet Union for China during the everything-was-real-Communist Mao era. But the elites didn't need the money by definition. And their extravagance would be more like working class in the West then. (Of course Mao Zedong himself enjoyed a mega-riche living) But then economic reform without political reform makes these elites realize they can become rich first. It becomes a monster: the poor still lived as poorly as in Mao's times, but the elites can live more like the Beverly Hills or Santa Monica rich!
bump
"Did Hong Kong noticeably influence [China's] economy?"
China promised to keep their sticky fingers out of Hong Kong's cookie jar for 50 years after the transfer of sovereignty. Unfortunately, there is absolutely no way to enforce that promise. So, of course, it didn't even last 50 minutes. Since then, China's "Socialist economic miracle" has been propped up by a leveraged embezzlement of Hong Kong's capital.
The next step in this process will be for the most gullible of Western investors to finally see past the shell game and figure out that loaning money to Hong Kong today is basically the same thing as handing it to the Communist Central Committee.
D'ja ever wonder why moonbats who barely know what a checkbook is -- let alone how to balance one -- protest the G8 and World Bank every time they meet? If not, don't worry, I'm sure the marchers don’t have any idea themselves -- but the granola their Communist handlers feed them ain't free, so you can bet your butt that THEY know why they're doing it. They're trying to keep China's "Normal Trade Relations" status as long as they possibly can. (Remember, they changed the name of that in 1998, after Clinton caught a shit-storm for defending China as a "Most Favored Nation" in 1997 -- the year they started cooking Hong Kong's books.)
The EnviroCommies know perfectly well that once the props get pulled out from under China, that Three-Card Monte scam disguised as a country will fall apart even faster than the Soviet Union did. And after just a little bit more cleanup, Communism will finally end up in the dustbin of history where it belongs.
"But the loans are probably guaranteed by the world bank so why worry?"
As I said, the Commies are very VERY worried about losing those guarantees. And with good reason. When (not if, but when) that happens, it will mean the end of the "Glorious People's Republic."
Why would the World Bank ever actually look after its own economic hide. Preposterous.
Besides the Olympics facilities, they also have already spent huge money on their Formula One track.
A guy I know from some car forums was at the China F1, racing in a next-tier event. The pics of the facility behind-the-scenes were just amazing, beyond the amazing track you saw during the race coverage. China spent some serious $$$$ constructing it.
>>How many young men do they have that will never get married? They have to give them something to do...(cold showers?)
As weird as this sounds, I'm hoping for low-cost sex robots and teledildonics to solve that problem. It's not as far-fetched as it sounds.
It's the only possible reasonable way I can see for that problem to get resolved. It's that, mass homosexuality, or mass foreign conquest of the kind not seen since the Mongols came out of Central Asia.
I'm afraid that by the time Communism falls apart in China, it'll be entrenched in Latin America. Venezuela and Bolivia are running fast in that direction.
"I'm afraid that by the time Communism falls apart in China, it'll be entrenched in Latin America. Venezuela and Bolivia are running fast in that direction."
That's why God invented the Monroe Doctrine. Any country that wants to can adopt Communism (or Scientology for that matter) as its economic religion. They just don't get to invade their neighbors. When Communism has to compete, it's self-defeating. And if they don't have a Big Brother footing their bills, they just rot on the vine.
[BTW, I'm new on the forum, how do you do the italics here?]
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