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Unformatted text preview: ressed, the welfare and security burden assumed by the SOEs was
transferred to the government sector.
Although state-directed lending has slowed down significantly, certain banks and their officers
still feel pressure from local party officials or local businesses with political connections to make
uneconomic lending decisions. The government intervention in the city commercial banks is
notable, as these banks are partly or fully owned by the local government. In some cases, the
leading officers of these banks are appointed by the government. Consequently, the NPL ratio in
city commercial banks is as high as 30.96 percent by the end of 2000, although it is reduced to
16.53 percent in the middle of 2003 (Wang Yijiang and Tian Guoqiang, 2003). 研 究 所 年 報 144 Low�operating�efficiency�of�State-Owned�Enterprises
The underlying causes of China’s NPLs situation have to do with the way China has
t raditionally financed its multitude of state-owned enterprises (SOEs). Under the planned
economy, SOEs are required to produce according to the economic plan made by the government.
In order to ensure that SOEs implement the production plan as required, almost all capital needed
by SOEs was provided through fiscal appropriation. In the 1980s, Chinese government changed
the way it financing SOEs from fiscal appropriation to banking loan. As state-owned banks are not
really commercial banks, they are forced to assume fiscal burden. Such a distorted credit system
would definitely create moral hazard in SOBCs’ loan to SOEs. SOEs have treated their share of
credit allocations as government grants and used them to finance circulating capital and fixed
investment. In too many cases, these disbursals have not been thought of as debt obligations that
had to be repaid. Though state enterprises have been able to shift the consequences of their lack
of foresight to Chinese banks, the banks have had no way to pass the burden on. Hence, a large
amount of NPLs arose.
Besides the distorted credit system under planned economy, low operating efficiency of SOEs
also produced considerable NPLs. SOEs represent over 40 percent of China’s manufacturing
output, employing more than half of the industrial workforce (Norton and Chao 2003). Having
long suffered from technological obsolescence and excess capacity, the SOEs were squeezed by
intensified competition as China gradually opened its doors to private and foreign capital in most
industries. In 1998, over two-thirds of all SOEs generated a loss for the year. In contrast, private
companies including Chinese owned, foreign owned and joint ventures have grown very fast over
the past ten years and have become the engine of China’s economic growth. They account for half
of all output and much of net new job creation. Meanwhile, the share of production from wholly
SOEs has shrunk to barely one-quarter of GDP. Nevertheless, wholly and partially state-owned
companies absorb most of funding from the banking system. Wholly state-owned companies
receive 35 percent of bank credit although they only produce 23 percent of GDP. The shareholding
e nterprises that are partially state-owned and the collective enterprises take up another
38 percent of credit, although producing only 25 percent of output. D...
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This document was uploaded on 03/12/2014.
- Spring '14