Transcript 176275_Net Assessment China Finance

Net Assessment:
The Chinese Financial System
He who is contented is rich.
- Lao-Tzu
To begin: land and labor
• 10 million sq kilometers. Rugged
disconnected vast geography
• 15 percent arable land. 1.3 billion people.
142 people per sq km
• 790m workforce. 300m farm workers.
Labor intensive economy
• Urban / rural gap. 740 million rural folk; per
capita net income is $2 per day. Urban per
capita disposable income $2300.
High levels of deposits ($9 trillion). Total banking assets are
$11 trillion. Enterprise deposits slightly surpassed household
savings (about $3.5 trillion each). Central government holds
$2.3 trillion in foreign exchange reserves.
Year
20
09
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
70
60
50
40
30
20
10
0
19
85
Trillions RMB
China: Funds and Deposits in Financial Institutions
Oct. 2009 total deposits = 60 trillion RMB ($8.78 trillion)
Household savings
Enterprise deposits
Total deposits
All sources of funds
Bank loans are the dominant means of obtaining finance. The
banking system is mostly state-run and includes policy banks, four
state-owned commercial banks, over a dozen joint-stock
commercial banks, numerous urban and rural commercial banks
and credit cooperatives, and foreign banks.
100%
80%
Corporate bonds
Treasury bonds
Stocks
Bank loans
60%
40%
20%
0%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
Q 08
12
00
9
Percentage of total financing
Banking dominance
Year
SOEs and
part-state
companies are
dominant in
small stocks
and corporate
bond markets.
Outstanding loans of $6.1 trillion. Most loans (68%) go to
capital intensive sectors, mostly managed by state-owned
enterprises (SOEs). SOEs receive three-fourths shortterm loans and half to two-thirds of medium-long term,
often with preferential terms. Private companies selffinance, rely on close networks, access informal finance
sector, or seek FDI.
Sectors receiving short term loans 2006-2009
Other
30%
Private or foreign
invested
2%
Industrial
32%
Commercial
17%
Construction
3%
Agricultural
16%
State banks lend to state companies that work with politicians and
deposit their earnings back in the banks. Inefficient uses of capital
develop. NPL near catastrophe in late 1990s. NPL ratios in top
two bank categories hit 26% and 12%. Loan growth, GDP growth
and fudging stats make NPLs look smaller now. But they are
created by nature of the financial system.
Non-performing loans
Percentage of GDP
120%
100%
80%
60%
Non-performing loans
40%
Total lending
20%
0%
1998
2000
2002
2004
Year
2006
2008
The lending surge