The reform of soes at this stage actually transformed

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Unformatted text preview: culating capital and a large amount of fixed capital used by SOEs were financed through bank loaning, instead of fiscal appropriation. The additional fiscal appropriation for circulating capital in enterprises was RMB 6.66 billion in 1978 and it declined to RMB 0.996 billion in 19847. Since the state-owned banks are not independent commercial banks at this stage, it was forced to assume the function of finance department to give financial support to SOEs. The reform of SOEs at this stage actually transformed the fiscal burden of the government into the credit burden of the state-owned banks. Consequently, nonperforming loan occurred, although its size was relatively small. This is the fundamental source of NPLs in sate-owned banks. Stage III: 1992-1998 At this stage, the growth of NPLs speeded up. The amount of NPLs increased more than five times from RMB 421.62 billion in 1992 to RMB 2,262 billion in 1998 while the ratio of NPLs to total 7 Data source: China Statistical Yearbook, web of National Bureau of Statistics of China, Non-Performing Loan of China’s Banking System 137 loan rapidly rose from 19 percent in 1992 to 33 percent in 1998. Overheating of the economy and bankruptcy of some SOEs are the leading factors that results in the fast growth of NPL at this stage. Chinese economy experienced an unprecedented o verheating since 1992. Economic growth rates were as high as 14.1%, 13.1% and 12.6% respectively in 1992, 1993 and 1994. The growth rates of total investment in fixed assets were 44.4%, 61.8%, and 30.4% in these three years. Domestic credit grew at the rate of 30% per year between 1991 and 1995, a rate significantly higher than the average growth rate of 21.3% in the 1980s. As a result of the overheating, consumer price soared to 14%, 24.1% and 17.1% in 1993, 1994 and 1995 respectively8. Economic overheating in 1992/93 was partly caused by industrial bottlenecks and inflation, and partly by investments being channeled to low-productivity or unrelated projects, such as luxurious real estate development and stock market speculation. Speculations were so serious that “hot money” largely flowed into real estate market. Due to the overheating of economy and the lack of efficient financial supervision, a great deal of banking loans was invested in real estate and stock market. In order to cool off the economy, the “moderately restrictive policy” was introduced and 16-point Austerity Plan was released to control money supply and investment on July 3, 1993. Domestic loans increased by 48% in 1992, but declined to 8.9% in 1996, and 4.5% in 1997. The growth rates of total investment in fixed assets fell to 17.5%, 14.8% and 8.8% in 1995, 1996 and 1997 respectively9. As result, Chinese economy realized “soft landing” well before the Asian financial crisis broke in 1997. However, the stock price and real estate price fell down sharply during this process. A large quantity of bank credit formed during this period hence...
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This document was uploaded on 03/12/2014.

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