Bolstering China’s Banks

An article in this issue of Business Week said: “Beijing seems serious about reform, and bad-loan burdens are easing.”

The Chinese have proved again and again in recent years that when it comes to business, it’s a mistake to underestimate them. The latest example is the banking system, declared by analysts as recently as a year ago to be hopelessly crippled by political lending and bad debt. Beijing has spent much of 2004 proving those naysayers wrong by getting serious about bank reform. First it announced a massive, $45 billion bailout of state-owned China Construction Bank Corp. and Bank of China early in the year. Since then officials have pushed banks to move billions of dollars’ worth of bad loans off their books, rein in lending to dubious projects, and improve risk-management systems. Yes, there are still too many “policy” loans being made to limping state-owned enterprises and too few to private companies. But unlike the Japanese, who spent the 1990s avoiding the painful steps needed to fix their banks, the Chinese seem ready to tackle the problem

December 4, 2004 10:48 AM
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