"Chinese regulators vow banks won’t grow recklessly; Boom in lending stirs debt worries" by Keith Bradsher | New York Times, November 12, 2012
BEIJING — Loans have been climbing steeply as a share of the economy for four years, prompting foreign analysts to question the sustainability of an economic model based on ever more debt invested in a wide range of industries that are already facing overcapacity.
Chinese households and businesses have also begun shunning the very low, regulated interest rates offered by the giant state banks in favor of more speculative financial products. The central bank has been helping commercial banks sustain extremely heavy lending this autumn by pumping record sums of money into the financial system....
That doesn't work. It only devalues the currency.
Foreign analysts have warned that borrowers in many industrial sectors have used bank loans to speculate in real estate, so that the banking sector may have an unintentionally large exposure to the country’s real estate market.
Foreign analysts have also been skeptical of the low proportion of nonperforming loans. They say that a torrent of loans issued in 2009 and 2010 to bail the country out of the global financial crisis has not had time to produce a lot of bad loans. They also suggest that a renewed burst of lending this autumn is helping troubled borrowers, at the risk of racking up even larger debt on which they may default later.
Of course, when the Federal Reserve does it, it is a good move and it saved the economy.
The rapid increase in corporate lending has helped pull the economy out of a downturn that occurred over the spring and summer, but it has also increased debt burdens considerably in the corporate sector....
The news conference was not held because of imminent concerns about the China’s financial system but was arranged by the spokesmen for the 18th Communist Party Congress after domestic and foreign journalists submitted a flood of requests in the past week for interviews with leaders of the banking sector....
--more--"
UPDATE: China Has A Subprime Crisis, Rolled Into A Faux Commodity Crisis, Wrapped In A Realty Bad Loan Banking Crisis, That Will Make What The Us Had Look Like A Kindergarten Picnic
And the deposits are even insured?
Chinese households and businesses have also begun shunning the very low, regulated interest rates offered by the giant state banks in favor of more speculative financial products. The central bank has been helping commercial banks sustain extremely heavy lending this autumn by pumping record sums of money into the financial system....
That doesn't work. It only devalues the currency.
Foreign analysts have warned that borrowers in many industrial sectors have used bank loans to speculate in real estate, so that the banking sector may have an unintentionally large exposure to the country’s real estate market.
Foreign analysts have also been skeptical of the low proportion of nonperforming loans. They say that a torrent of loans issued in 2009 and 2010 to bail the country out of the global financial crisis has not had time to produce a lot of bad loans. They also suggest that a renewed burst of lending this autumn is helping troubled borrowers, at the risk of racking up even larger debt on which they may default later.
Of course, when the Federal Reserve does it, it is a good move and it saved the economy.
The rapid increase in corporate lending has helped pull the economy out of a downturn that occurred over the spring and summer, but it has also increased debt burdens considerably in the corporate sector....
The news conference was not held because of imminent concerns about the China’s financial system but was arranged by the spokesmen for the 18th Communist Party Congress after domestic and foreign journalists submitted a flood of requests in the past week for interviews with leaders of the banking sector....
--more--"
UPDATE: China Has A Subprime Crisis, Rolled Into A Faux Commodity Crisis, Wrapped In A Realty Bad Loan Banking Crisis, That Will Make What The Us Had Look Like A Kindergarten Picnic
And the deposits are even insured?
"China to create deposit insurance for banks" by Keith Bradsher | New York Times, December 14, 2012
HONG KONG — China’s new leadership is preparing to introduce bank deposit insurance as the first step in financial reforms to be started soon at a top-level meeting in Beijing, a government official and banking policy advisers said.
A consensus has formed among China’s leaders that the country needs a formal system of bank deposit insurance as banks have rapidly ramped up lending and begun offering a wide variety of increasingly risky investment products that do not appear on their balance sheets, the official and advisers said.
I can NOT BELIEVE the Chinese FAILED to learn from US!!
I can NOT BELIEVE the Chinese FAILED to learn from US!!
Introducing deposit insurance could also help the government steer the financial system toward providing more credit for small and medium private enterprises. These now receive as little as 3 percent of bank lending even as they account for at least half the country’s economic activity.
Sound familiar, Americans?
Sound familiar, Americans?
Without a clear system until now for closing banks that lend unwisely, banks have been encouraged by regulators to lend overwhelmingly to state-owned enterprises that appear certain to repay loans. That has left smaller businesses and private companies starved for credit.
The first public indication of the government’s intense interest in deposit insurance is likely to come at the Central Economic Work Conference this month, said the official, who discussed internal government matters only on the condition of anonymity. Held each December since 1994, the conference is the most important economic policymaking event in the Chinese calendar and sets the agenda for the coming year.
This month’s conference, the exact dates of which are secret, is being watched by economists and investors as a clue to the agenda for the next decade of Xi Jinping, the new general secretary of the Communist Party.
Until now, the government has informally and quietly paid off all depositors in full when small banks and rural cooperatives have failed; no large banks have been allowed to fail. The government’s fear has been that allowing any depositors to sustain losses would undermine confidence in the financial system.
Western bankers don't care. As we have seen in Cyprus, they will seize savings accounts to sate their greed.
Western bankers don't care. As we have seen in Cyprus, they will seize savings accounts to sate their greed.
China’s banking industry is divided on the need for deposit insurance. As in other countries, the biggest banks are the least enthusiastic. With a little more than half the country’s deposits, China’s Big Four banks are widely viewed as too big to fail but are likely to owe hefty premiums for the deposit insurance plan being developed.
China’s current five-year plan calls for the government to study deposit insurance, but not necessarily to adopt it.
