Dealing with Bad Loans of the Chinese Banks

Abstract

China was the only major economy in East Asia that not only averted a currency crisis but also sustained relatively strong growth. This was largely attributable to its macroeconomic strengths when the crisis began, including sizeable current account surpluses, dominance of foreign direct investment in capital inflows, large foreign exchange reserves and control of the capital account. There are widespread signs, however, indicating that China’s banking sector is fragile. Such banks are not sustainable even in an autarchic economy, let alone that opening up of capital market is inevitable in the perceivable future. The first step of building a strong banking system is to deal with the bad loans. Show more