Chinese Banks Built on Quicksand


Chinese banks, a source of U.S. borrowing, are built on quicksand, at least that is one viewpoint reprinted on Bloomberg News. This isn’t good news for their biggest recipient of borrowed money.

The MSCI China Financials Index of bank stocks has declined 32 percent this year on concern the quality of loans to local governments and the housing market will deteriorate as economic growth slows. State-run Central Huijin Investment Ltd., an arm of China’s sovereign wealth fund, said on Oct. 10 that it started buying stock in the four biggest Chinese lenders after their shares tumbled this year.

China spent 3.5 trillion yuan ($550 billion), equal to a fifth of its 2005 gross domestic product, bailing out and recapitalizing state-owned banks since 1998 as their lending to unprofitable state-owned businesses turned sour, according to an estimate by Moody’s Investors Service in 2007. Since September 2008, Chinese banks doled out $3.8 trillion in new loans to offset the impact of the global financial crisis, according to the International Monetary. 

Bloomberg News