The basic problem, they say, is that the Chinese government owns the banks and will continue to control them after the public offerings. The government has always exercised ultimate authority over the banks’ lending decisions and, historically, has forced them to lend to corrupt and inefficient state-owned enterprises. That leaves the banks with a large share of loans that, effectively, default. Despite the recent reforms, that basic interference continues.
Because the government now badly wants to modernize its financial sector and bring it up to Western standards, it has made a clear attempt to clean up the balance sheets of the big banks in preparation for their public offerings. The Industrial and Commercial Bank received a direct infusion of something like $30 billion from the Ministry of Finance and the Chinese central bank. The government also reduced Industrial and Commercial’s ratio of “nonperforming loans” to less than 5 percent from 34 percent in 2000 by taking $35 billion in failed loans off its books and giving them to specially created “asset management
http://faculty.chicagobooth.edu/austan.goolsbee/website/PDFs/escene.06.10.china.pdf
Read this PDF file!!!!
Thanks.
Thanks for the link, but that does not support the statement of "world's highest default rates". And I'd stop criticizing govt. control of banks - US owns 79% of AIG, 60% of Citi, is owed large loans by all other banks and essentially funds day to day operations of major US banks (through the discount window).
India stipulates mandatory agricultural loans, 16% rural branches and no-fully-owned-foreign-banks. It does slow the growth of the sector and economy, but also gives more room for government to intervene in a crisis.
Anyway, expecting Chinese govt. to keep its hands off the banking sector, the lubricant of the economy which it wants to control is pointless. If they mess up, they can always control the currency exchange rates and rescue the banks -its simpler than picking up broken pieces left by a private banking sector.
Of course, if Chinese government can single handedly handle a serious multi-sector crisis is open to question, but that is not the current crisis as far as China is concerned.