Don’t Bank on China – Gary J. Schmitt and Jared Feiger

From The Weekly Standard, via American Enterprise Institute:

Early last month, the accounting firm of Ernst and Young released a report concluding that the “nonperforming” loans of China’s banks totaled $911 billion (40 percent of China’s GDP)–a figure that far exceeds the Chinese government’s own estimate of $164 billion. Beijing’s response to the report was not subtle: “The report not only seriously distorts the actual assets quality of the Chinese banking sector,” but “its conclusions are absurd and incomprehensible.” Ernst and Young withdrew the report the next day, citing fundamental errors in the analysis.

But was the report really that flawed? Or was the firm’s report more right than wrong, and retracted only because doing business in China these days requires pulling one’s punches? [Full Text]


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