China’s giant banks are in trouble and need to come to grips with reality

china cronyism

China is coming to grips with economic reality increasingly. The numbers coming out of the PRC, long suspect, are now widely regarded as being very optimistic. China may be going through its first recession in 30 years, but we don’t know because the data is dung.

At the top of the Chinese “dream” are their absolutely mammoth banks. For all the crony capitalism in our banking system, and it is rife, the Chinese banks are far worse. 

(From The Economist)

But these headline figures hide a multitude of sins. China’s use of its biggest banks to implement the 2009 economic stimulus has left a legacy of murky accounting, off-balance-sheet transactions and dodgy lending. Official data on non-performing loans put their level at just 1% of bank assets. No one believes that number. The banks’ quarterly results released this week showed profits with little increase in provisions. But Morgan Stanley, an investment bank, reckons a more realistic figure may be 10% for all banks, and 6-8% for the biggest. Things are worse in the many industries saddled with overcapacity: 17% of loans to the manufacturing sector, for example, could become duds if the economy sours, says Morgan Stanley.

Click here for the article.