Banking in China
Needed: a strategy
Dec 30th 2008 | HONG KONG
From The Economist print edition
With Western finance in disrepute and local markets moribund, international banks are groping for a role in China
China’s bankers and their regulators may also be facing disasters of their own, as the limitations inherent in a state-driven system become clearer. It is striking that the widespread closure of factories in southern China, the country’s principal manufacturing region, has led to no significant reports of credit deterioration. The only sign of apparent financial distress has been a largely unexplained capital infusion of $2.5 billion by the Bank of China into its Hong Kong-listed affiliate. The suspicion is that some, and maybe quite a lot, of the relative strength of the Chinese system reflects opacity rather than a more effective approach to allocating credit.
If so, then China may be due for its own round of financial restructuring and recapitalisation. It would once have been easy to argue that a market-driven system served up by big Western banks could do a better job of this than the government. When virtually every such institution has been given state support to stay in business, that case is much harder to make.
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