Redudancy or “Chinese State-Owned Bank Fraud”
by James Na ~ June 27th, 2006. Filed under: China, Economics, Engagement. WaPo reports:
The Chinese government’s disclosure this week of $1.1 billion worth of fraud at one of the country’s largest state-owned banks underscores the risks confronting foreign investors and the precarious nature of China’s corruption-ridden financial system.China’s National Audit Office on Monday announced that an examination of records at the Agricultural Bank of China — one of four state-owned giants — uncovered 51 cases of criminal wrongdoing involving 157 people during 2004. The state audit also found evidence of $1.8 billion in improperly handled deposits, and $3.5 billion in illegal loans.
But wait, it gets better:
China’s leaders are particularly keen to fix its ailing lenders ahead of next year, when foreign banks will finally be allowed to conduct business inside China in local currency. That is expected to pose a grave challenge to domestic lenders, whose managers have been nurtured by decades of state capital infusions and a system governed more by personal connections than consideration of the bottom line. [snip]“This case that has emerged at the Agricultural Bank of China is just a minor one among the overall problems with China’s state owned banks,” said Yi Xianrong, a director at the China Academy of Social Sciences’ financial research institute in Beijing. “Lots more such cases are not discovered and will be discovered sooner or later, as the most serious problems involve medium- and long-term loans.” [snip]
Foreign investors are eager to lock up stakes of banks in China’s huge, sizzling economy. With stock and bond markets still in their infancy, China’s four largest state banks essentially dictate where capital goes in China. But the foreigners are sinking their money into a financial system that has traditionally functioned more as an artery of cash for companies owned by the Communist Party-led government then as careful arbiters of risk and reward.
Private economists estimate that China’s banks are now choked with $500 billion in bad loans, making the system vulnerable to a shock. [Boldfaces mine.]
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June 27th, 2006 at 4:56 pm
Gordon Chang, call your office!
June 27th, 2006 at 8:38 pm
Psst. Here is secret weapon to disintegrate PRC into bunch of little Chinas like what happened to USSR. Spread the word to the masses that your saving in the bank is not safe due to HUGE bad loans. Penny saving Chinese will literally go beserk and big riots to get the money out. Government will be forced to print more money in vain attempts resulting counterfeits (which is already widely circulated especically 100 RMB notes) overwhelming the system. Money means a LOT to furgal penny pinching PRC savers. Riots fan out to other overall dissatisfactions and bring the downfall of yet another dynasty by peasants in China. Fiction? Maybe.
No one really knows how bad the bad loan problem is in China. But it’s BIG, very big. $500 bil wouldn’t surprise me. I’ve been going to China 3 to 4 times a year since 1997 and lately I had friends talk about depositing their newly acquired wealth in foreign banks outside China (smart ones are selling real estate at peak of bubble).
Local banks are really controlled by local politicians and even overseas Chinese who dictate who gets the loan and how much and payment terms. Pay enough bribe and voila got a new loan. money goes to sustain the moeny losing SOEs (state owned enterprises) which are critical to local economy. All these local focused investment is what’s really heating up PRC economy and which beaurcrats in Beijing has little control over. Lack of credit reporting and even simple rules for loans do not exist which compound the problems further.
June 27th, 2006 at 10:41 pm
I do not think breaking up China into several parts is such a great idea. It was great that the Bolshevik regime in Russia was destroyed, but we are still dealing with a great deal of uncertainty, tension and conflict in the former Soviet Caucasus and Central Asia.
I would not wish that upon China or the Chinese. Nor would it be good for the stability of East Asia.
Now, if a liberated China were to have a representative form of government, and the people decided that a federal system of government would be the ticket, be my guest.
June 28th, 2006 at 12:19 am
Next big war will be between US and PRC. Japan, Taiwan and hopefully GNP/conservative controlled Korea on US side.
It’s US’ best interest to break up PRC into little fiefdoms ruled by strongman much like real history of China - North (above Shandong including Beijing), Middle (Jiangsu down to Zhejiang including Shanghai), South (Fujian to Guandong including HK), Inner (populous Hunan, Sichuan, etc), Inner middle (Anhui, Hubei, etc). These little China may resort to democracy but looking at brokwn USSR don’t count on it and who cares. Gotta be better than red commies. Sure there all mostly Han Chinese but PRC is big enough and threathens US influence in Asia. And these little China will try curry favor with US too giving US chance to influence them.
Long live US “imperialsim”. Seriously as we too will face the decline of Great Britain.