Friday, November 24, 2006

Problems in Chi-com land

It looks like banks in China may be rather less than stable* - a worrying prospect in a number of ways:
Foreign banks threaten to roil China's savings pool. They're scheduled to take deposits from the beginning of next year as a condition of China's accession to the WTO. That's bad news for the Chinese government, which needs the savings pool to fund the bad loans in the domestic banking system. That may explain why the State Council has issued regulations further delaying the date when foreign banks can take retail deposits.

The Chinese economy has a problem; the huge amount of bad loans - probably as much as $1 trillion, equivalent to more than 40% of GDP - that Chinese state banks have made to loss-making state-owned companies with political connections. So far, everything's been fine. Foreign investors have snapped up minority stakes in Chinese banks in IPOs this year, the most recent a record-breaking $21.6 billion operation for Industrial and Commercial Bank of China.

Incidentally, look for lots of banking-related posts in the near future from me - not because I'm particularly interested in the subject, but because American Banker is the only thing I can really read to slack off on the job.

*No password? Try BugMeNot - they won't bug you!


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