A Trillion Dollars in Bad Loans

The Australian reports that China's mismanaged state-controlled banks may have more a trillion dollars in non-performing loans (NPLs).  It explains:   

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.

To read more:

http://www.theaustralian.news.com.au/story/0,20867,19067992-36375,00.html

Comments

[ChinaLawBlog]

I did a post on this here: http://www.chinalawblog.com/chinalawblog/2006/05/chinese_bank_pr.html
and one of my readers (who is quite astute) commented that he thought the E&Y figure involved double counting.