Need a Loan? Go to China

There is a truly harrowing new working paper out on China’s banks from the IMF. The author investigates recent reforms in China’s banking system, and comes to a disturbing conclusion:

We examine lending growth, credit pricing, and
regional patterns in lending from 1997 through 2004 to look for
evidence of changing behavior of the large state-owned commercial banks
(SCBs). We find that the SCBs have slowed down credit expansion, but
that the pricing of credit risk remains undifferentiated and banks do
not appear to take enterprise profitability into account when making
lending decisions. [Emphasis mine]

Did you get that? Despite being less profligate about spinning out loans, Chinese banks still dole out money without paying overly much attention to inconsequentials like profitability, creditworthiness, etc. What fun!

Related posts:

  1. Sobig and SARS: China as virus ground zero
  2. The Billion Dollar Fund Thing
  3. Raising Venture Capital Anonymously
  4. Spark Me Please
  5. The Economics of People

Comments

  1. Kevin says:

    It is fun consider most SCBs only lend to state-owned enterprise.
    What’s to worry about? the state will bail you out.

  2. Mark Kraft says:

    “Despite being less profligate about spinning out loans, Chinese banks still dole out money without paying overly much attention to inconsequentials like profitability, creditworthiness, etc.”
    Wow. Sounds like a great place to bankroll the US debt!

  3. Michael Robinson says:

    Loans from SCBs to SOEs are essentially transfer payments to otherwise unemployed workers.
    Think of it as unemployment insurance, but you have to go to work to collect it.

  4. China’s financial system is a mess. The big banks loan to the state owned companies while most private companies must borrow from pawnshops (I’m not kidding) or the black market. On top of this, China basically blocks foreign lenders. All of this makes China’s tech companies desperate for capital and is feeding the recent influx of VCs into China. I did a post a few weeks ago on this, called, “Hey Buddy, Can You Spare a Yuan”.