Chinese Banks Will Be Bailed Out, Again

The Wall Street Journal writes enthusiastically about growing competition in the Chinese financial services industry while dropping the biennial news that China will use public funds to clean up $120 billion in under-performing debt at the Big Four banks in the PRC:

On another tack, Mr. Liu confirmed that a rescue plan was in the works for the country’s biggest banks. That plan would involve capital injections, the hiving off of bad debt and possible stock listings. The experiment would likely begin with one or two of the banks before being expanded to others, Mr. Liu said. He offered no financial details.

The China Business Post, citing a Ministry of Finance official, reported Monday that the capital injections would take place next year and could involve hundreds of smaller Chinese commercial banks in addition to the big four state-run banks. The four — Bank of China, Industrial and Commercial Bank, Construction Bank and Agricultural Bank — hold about $120 billion in nonperforming loans, accounting for about 21% of total loans, according to government figures. Some private economists put their ratio of nonperforming loans closer to 50%.

When the state isn’t bailing out those banks, there will be real competition. For now, the increased access to the market by foreign banks is good news, but only because it points to increased access to capital for the Chinese. China’s government will continue to subsidize economic activity to the tune of several hundred billion dollars every few years in order to sustain the economic story that keeps today’s leaders in power. Who needs tariffs when you can write down capital investments in uncompetitive companies?

Author: Mitch Ratcliffe

Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.

One thought on “Chinese Banks Will Be Bailed Out, Again”

  1. Hello,
    Question: Americans are starting to heavily invest in Chinese stocks and in foreign resource/mining/ore company stocks (for exports to China). Is it too risky to do any of this yet until the Chinese banks are solvent and after the yuan floats or pegs to mulitiple countries? We do not want to experience another stock market crash. Thank you for your outlook. Oracle

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