Hi westpacific, the Chinese banking crisis received a lot of attention in the past and still manages to make it into the newspaper once in a while. My opinion is that the issue is real, but not critical, and certainly not determining, because ...
Message 16172978
August 6th, 2001
"Just as an example, it has been much reported that China’s banks will blowup due to all the bad debt. What the reporters fail to analyze is that the nature of banking in China over the past 50 years was actually a money moving function of the state, with the state owning both the borrowers and the banks, and the population’s deposits are guaranteed by the state and all the population worked for the state essentially for free. This is what happens in a poor communist economy.
I had always quipped that communism requires a lot more wealth than capitalism.
In the upcoming bank IPOs, the bad debt will be absorbed by the state, funded by the sale of state-owned enterprises that had, in many cases, been the bad debt borrowers. The cleanup is mostly an accounting entry, backed up by privatization. Given the low debt level of the state, no serious private source bridge loans will be required for the IPO or conversion.
A natural question than arises, “if it is so easy, than why the wait?”. China lacks trained non-engineering people (lawyers, accountants, real bankers, etc) and the banks were not ready. Over the past 10 years, literally tens of thousands of lawyers, bankers and accountants have been cycled through the US, Britain, Japan, Hong Kong, Argentina to learn, funded by the governments and the institutions and the Chinese themselves. Laws and institutions have been adapted, and in some cases copied. Pilot schemes tried out in select cities, experiences analyzed. The banks are nearly ready.
The reform of each and every sector has been cautiously methodical, because only one chance to succeed in a given elapse of the equation of time. Now, in thinking about the nature of the problem the Chinese government faces, think about the sectors that must be concurrently reformed: Legal, Education, Finance, Tax, Health, Social Services, Pension, Insurance, …
How far down the list do you suppose the reform of the political structure will be … yup, pretty far, and by the Russian and Indian experience, necessarily so.
Do you suppose that political structure reform is on the list at all … again yup, because the resultant home owners will demand it.
It would be wrong to think of China as simply another potential Russia, Japan or India. It is perhaps more realistic to think of China as the US in 1920 or slightly earlier."
... and so I own a chunk of Bank of China Hong Kong, and another slice of The Hong Kong and Shanghai Banking Corporation.
BTW, the political reforms are underway as well ...
Message 18118069
Chug, Jay |
