Sunday, February 7, 2010

NPL's Soar in China

Non-performing loans in China have risen into the “trillions of renminbi” because of poor lending practices, an insolvency lawyer said.

“We work really closely with SASAC, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China that no one is doing anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference yesterday. “At some point there’s going to be a reckoning for that.1

When this last happened, the government was able to bail out the state-managed banking system. But that was during a time of rising trade and trade surpluses. On the other hand, experts have been waiting for China's inefficient banking system to collapse for years, and it was the freewheeling West that went down first. In the meantime, living standards have risen for a good portion of China's population.

1'China Defaulting Loans Soar, Insolvency Lawyer Says' - Bloomberg; Smith
2'Wen Says Chinese Concerned About Graft, Income Gaps, Housing' - Bloomberg

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