Unformatted text preview: 13.9 15.0 While the state-owned banks (SOB) became the major financial vehicle of the national economy,
they became increasingly involved with SOEs. To subsidize the loss-making SOEs, the
government sought financial resources from both the People's Bank and the commercial banks in
the form of policy loans. Such high default risk policy loans had adverse impact on the health of
7 IMF Article IV Consultation, 1998 8 He Qinglian, China's Latent Economic Crisis and Potential Risks, p.2, 11/1999, University of Chicago
9 State Statistic Bureau, Statistical Yearbook of China 1986, p.507, and table 3-1.
10State Statistic Bureau, Statistical Yearbook of China 1995, p.215, and table 3-1.
" Liu Zhong li, Report on the Implementation of the Central and Local Budgets for 1996 and on the Draft Central
and local Budgets for 1997, Beijing Review, April 7-13, 1997, p.28; and table 3-1 the banking system. The profitability of the commercial banks declined consistently in the 1990s
(Table 2). If uncollected interest payments were excluded from the revenue side of the financial
accounts, most state-owned commercial banks, except the Bank of China, would have reported
financial losses in 1996 and the following years' 2.Meanwhile, the average capital-adequacy ratio
was only 4.4%, lower than the 8% required by the China's Commercial Bank Law. In 1998, the
central government had to issued a special treasury bond amounting to RMB 270 billion to recapitalize the bank to raise their capital-adequacy ratio to be above 8%. Table 2: State-owned Banks' Performance in the 1990s
(RMB billion) (RMB billion)
Source: Almanac of China's Finance and Banking ROE (%) ROA(%) 18.4
0.15 Real Estate Bubbles in 1990s
After Deng Xiaoping's southern expedition in 1992, China declared a "sot market
economy", which inaugurated a new economic boom. Like Thailand, China's economic boom in'
the 1990s was largely led by the real estate and construction sector. The SOBs in addition to
other financial institutions imprudently funded massive property developments throughout
China. First class office buildings, luxurious hotels and lavish residential housing sprang up
1 John P Bonin, Dealing with the Bad Loans of the Chinese Banks, p.10, 01/2001, Department of Economics,
Wesleyan University across the nation. Shanghai with the full support from the new pro-Shanghai leadership of the
central government created the "Pudong Miracle". In five years, Shanghai transformed itself into
one of the world's most glamorous metropolis. By the end of 1997, Shanghai boasted over more
than one thousand skyscrapers, about one hundred five-star hotels and 13.5 million squar...
View Full Document
- Spring '14