Chinese banks in debt crisis

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Thursday, 1 November, 2001, 11:47 GMT

Chinese banks in debt crisis

China hopes to resolve its banking debt crisis

Close to half of all loans made by Chinese banks may never be repaid, a report by Ernst & Young has found. The report was published ahead of a meeting in Beijing on Thursday, where Chinese officials hope to resolve the problem by agreeing to allow the sale of this debt at a discount to foreign banks.

This could mean that foreign banks end up owning large parts of Chinese industry, as the indebted state enterprises effectively offer their collateral for sale.

Fear remains that the investment banks - having bought the debt so cheaply - will strip the state enterprises of their assets.

The first auction of this debt looks set to take place in the middle of November, two years after the government set up four asset management firms to resolve the bad loans of the state banks.

Confused figures

The Ernst & Young figures contradict official Chinese figures, which put the bad debt of the four main state-owned banks at nearly 27%.

The central bank has ordered China Construction Bank, Industrial and Commercial Bank of China, Bank of China and Agricultural Bank of China to cut bank loans by 2-3 percentage points a year.

The government had originally set a 10-year limit for resolving the debt crisis.

The four state banks account for more than 70% of lending and over 80% of deposits.

http://news.bbc.co.uk/hi/english/business/newsid_1632000/1632056.stm

-- Martin Thompson (mthom1927@aol.com), November 01, 2001


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