Re: Banks crisis?

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

"China's indebtedness would surpass virtually every other major economy
... Hence, without dramatic changes over the next five years a major
financial crisis may become inevitable."

Comment:

China (and Japan) should let bygones be bygones.

Thus, its Government can 'buy' bad debts from the financial system for, say,
30-year zero or low-interest bonds.

With GDP growing at, say 8% per annum, the 'real' burden on China's budget
will diminish rapidly.

Gunnar




----- Original Message -----
From: "John M. Legge" <jlegge@xxxxxxxxxxxxxx>
To: "Post Keynesian Thought (E-mail)" <PKT@xxxxxxxxxxxxxxxx>
Sent: Saturday, January 18, 2003 6:36 AM
Subject: FW: Banks crisis?


> Any comments from this list?
>
> It seems to me that China is acting like an orthodox "development economy"
> (Wade's term?) and using bank debt instead of (non-existent) equity is the
> rational, Keynesian way to sustain high growth.  It is disappointing that
> the neoliberals seem to have got hold of the economics profession in the
> PRC, though,
>
> JML
>
>
>
> By Tiffany Wu
>
>      SHANGHAI, Jan 16 (Reuters) - Chinese economists are engaged in a
rare,
> frank debate over whether China's debt-laden banks are on the verge of
> collapse, just before a new generation of top financial officials gather
to
> set the policy agenda for the year.
>
>      In an article boldly headlined "Will a financial crisis break out?"
in
> Thursday's edition of the official Beijing Review, a group of renowned
> economists were unusually blunt
> about the mounds of bad loans choking China's state banking sector.
>
>      "Many problems exist in China's financial system, including problems
in
> the banking system and in the capital market," wrote Fan Gang, the head of
a
> non-government think-tank.
>
>      "Given this, reforms should be accelerated so as to prevent the
> emergence of a possible financial crisis," he wrote in the weekly
> English-language magazine.
>
>      Even though Western analysts have lambasted China's creaky banks for
> years -- estimating 50 percent of all loans were bad due to years of
> policy-driven lending to state companies -- this kind of candid domestic
> debate is rare, as Chinese economists are usually afraid of appearing
overly
> critical in public.
>
>      The economists stopped short of forecasting an immediate crisis, but
> stressed the pressing need for deep banking reforms.
>
>      Some speculated the timing of the article signalled bank risks would
be
> a main topic of discussion at a key financial meeting to be held by the
> central bank from January 23-26.
>
>      "There is a risk of a financial crisis breaking out in China. There
is
> a danger, but it has not become a reality yet," bankruptcy expert Cao
Siyuan
> told Reuters. "Only by recognizing the problem can we prevent a financial
> crisis."
>
>      NEED FOR CHANGE
>
>      Now was the best time to discuss these worries, analysts said, as the
> new Communist Party leadership appointed in November was younger and more
> open-minded than its predecessors.
>
>      Stepping into the limelight for the first time, the new leaders would
> not have a vested interest in covering up bad books and should be free to
> swing a hatchet at old problems,
> they said.
>
>      The analysts had high expectations for Liu Mingkang, expected to take
> charge of a new banking supervisory body to be split off from the central
> bank later this year.
>      Liu is widely respected in and outside China. He is untainted by
> corruption allegations that brought down his predecessor at the Bank of
> China, where Liu is now president.
>
>      Analysts also give good marks to new central bank governor Zhou
> Xiaochuan, who they said had encouraged private economists to be critical
in
> his previous job as chief securities regulator.
>
>      "The openness is accelerating," said Pu Yonghao, a consultant for the
> Asian Development Bank's Regional Economic Monitoring Unit. "Zhou
Xiaochuan
> is quite a determined reformer. He knows the economy well, just look at
what
> he did for the stock market."
>
>      CLOCK TICKING
>
>      In the past two years, China has tightened supervision of its listed
> companies considerably and the next step had to be long-awaited banking
> reforms, analysts said.
>
>      China set the clock ticking on economic openness after joining the
> World Trade Organisation a year ago, but had to cut bad bank loans so its
> currency could become freely convertible.
>
>      Credit allocation in China was vulnerable to corruption as most banks
> were state-owned, top official appointments were political and the system
> lacked experience in credit quality control, Morgan Stanley economist Andy
> Xie said in a report.
>
>      China's GDP rose $80 billion last year, but credit grew seven times
as
> fast. The economy was credit-reliant, Xie said, estimating the
credit-to-GDP
> ratio would reach 253 percent by 2007.
>
>      "China's indebtedness would surpass virtually every other major
economy
> ... Hence, without dramatic changes over the next five years a major
> financial crisis may become inevitable."
>
> Copyright 2003 Reuters Ltd.
>
>
>