China’s bank bail-out

加菲熊UID: 103463

A $45 billion shot in the arm

Jan 6th 2004
From The Economist Global Agenda


A massive cash infusion for two of China’s largest state-owned banks is just the beginning of a much-needed overhaul of the sickly financial sector


CHINA’S newish prime minister, Wen Jiabao, is a geologist by training. So far, the conversion of his country’s financial system from swadeshi communism to global capitalism has moved at the kind of glacial pace only a geologist could appreciate. But on Tuesday January 6th, the Xinhua news agency announced a great leap forward. At the end of December, it said, the Chinese state injected $45 billion—one tenth of its foreign-exchange reserves—into the country’s two largest banks, dividing the funds evenly between Bank of China (not to be confused with China’s central bank, the People’s Bank of China) and the China Construction Bank.

These lenders are two of China’s “big four” state-owned banks, the other two being Industrial & Commercial Bank and Agricultural Bank. With 116,000 branches across China, these four hold 67% of the country’s deposits and make 61% of its loans. But not all of those loans are likely to be repaid. The government estimates that 23% of the big four’s loans are “non-performing”. Most independent analysts think the true fraction is a third or more. Big as last month’s cash infusion is, it is just a drop in a bucket of bad loans totalling more than 3.5 trillion yuan ($422 billion).



The Buttonwood column
Dec 16th 2003
More than cash needed
Dec 4th 2003
Currencies
Dec 3rd 2003
Banking in China
Jun 12th 2003
Banking in China
Mar 6th 2003
Casino capital
Feb 6th 2003
Hints at reform in China's financial markets
Jan 16th 2003



China



The China Banking Regulatory Commission issues press statemtents.



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The WTO’s “peace clause” expires Jan 1st 2004
The Buttonwood column Jan 6th 2004

About Global Agenda






What kind of bank makes loans of which a third will not be repaid? The communist kind. Some of the banks, such as Bank of China, founded by the legendary nationalist Sun Yat Sen in 1912, predate the Maoist takeover, but none of them escaped its wholesale distortion of capital allocation. For decades they made loans based on bureaucratic, not commercial, priorities. Some funds served to prop up bankrupt state enterprises and the legions of workers who depended upon them. Others served social policy of a different kind—keeping cronies happy and palms properly greased. Wang Xuebing, former head of two of the big four banks, lost his job for making dubious loans and lost his liberty for taking bribes.

In a sense, the capital infusion announced this week simply shifts money from one state tentacle to another: $45 billion of foreign exchange, once under the custody of the state’s monetary authorities, is now under the custody of two of the state’s banks. But the Chinese government is hoping gradually to withdraw its tentacles from the banking system, and this latest injection of funds is a necessary part of that process. The state needs to clean its banks up in order to sell them off.

As a consequence, its funds have gone not to the banks in direst need, but to those most ready for the showroom. With a bit of tarting up, Bank of China and China Construction Bank will, it is hoped, make for an initial public offering (IPO) that investors (foreigners included) cannot refuse. Of the big four, China Construction Bank is in the best shape. A stockmarket flotation, perhaps as soon as this year, could raise between $5 billion and $6 billion, according to some investment bankers, who are already keenly offering their services as midwives to the deal. Bank of China, the country’s biggest foreign-exchange lender, which hopes to follow in 2005, could be even bigger. It already has some experience of going public, floating its Hong Kong operations on the territory’s stock exchange over a year ago.

The state will welcome these contributions to its coffers. However, its main purpose in selling the banks is not to raise money but to transform lending in China. The hope is that private banks run for the benefit of shareholders will lend more productively and more prudently than the big four have managed to date. They could hardly do worse. But although privatisation will undoubtedly help, privatisation without competition or regulation brings dangers of its own.

China’s people stash about 40% of their income in their nation’s banks. The big four do not have to chase deposits: deposits come to them. Privatising the banks will do little by itself to sharpen competition—a privately owned oligopoly is still an oligopoly. By the end of 2006, however, this cosy banking market will be shaken up by China’s commitments to the World Trade Organisation. Foreign banks will be allowed to do business in the Chinese currency with Chinese households. If the country’s banks, whoever owns them, do not learn how to compete for deposits, they may start losing customers to foreign entrants that do.

Complacent about the money coming in, China’s banks are also too free about the money going out. Lending by the big four grew by a fifth in the year to October, according to Goldman Sachs. Many economists fear that the Chinese economy is in serious danger of overheating. The central bank has raised reserve requirements in a bid to restrain lending, but to no great effect. Its job is greatly complicated by its desire to maintain a pegged currency: buying dollars at the fixed rate of 8.3 yuan creates a lot of extra liquidity that it then struggles to mop up.

Indeed, the Chinese authorities are caught in a bind. They cannot rein in their banks as long as they maintain their currency peg. But they cannot surrender their peg until the country’s banks are fit enough to live with a currency free to float and capital free to flee. It is a Gordian knot the Chinese state has only begun to unpick.

faceupUID: 25835

45 billion

Shocked!!

The government just forgave 1400 billion(RMB)  bad debts of four major banks of china last year. By that time, the goverment said it will be the last time government paid for the bank. But it seems the banks are really in big trouble, today another 360 billion (RMB) are used.

Where is the money people saved in the bank???????

妖妖UID: 149770

Where is the money people saved in the bank?

Money were consumed by the authorities now, if people need their depoists, the bank can publish  more bills to the society. :o It is common in China and many other Asian countries.

But now, there are some changes at bank. For the leader of the bank cannot load the money out freely, if he cannot overhaul the capital back, he will not  be allowed  to leave and he will be punished by law. So, the government set out to solve this big problems gradually.

45 billion?? mabye, the real number is bigger than it. It is well know that many data in China cannot be objective. Too many personal facts were mingled into it.

Now, all the prices were higher about 20% than before in recent days. But i do not know what will happen next, and the real aim of the government. The salary of all the clerks were raised after a month the prices higher.

faceupUID: 25835

sometimes, maybe we should think the flip side of the government's announcement.

when SARS was spreading, they said it was underconctroled; when Iraq was going to lose the war, they said US was struggling; so now, when the goverment said this is not an inflation and this inflation is normal, maybe the fact is reverse

Snow WhiteUID: 147301

It is meaningless for public to talk about the government. All they needing are a peace and comfortable life. So , in my mind, i thought the only standard of judging  the authorities  is the live of a common family.