Monday, October 06, 2003
There is no doubt that current lending practices will give the Chinese government a lot of grieve in the future. I myself am quite pessimistic about the long-term viability of the Chinese banking system. Having said that, there are some recent developments that might delay the impending crisis for a few more years. Although consumer lending is quite reckless these days, the credit risk has actually declined compared to the mid-90s. Just by spreading their risk to many small borrowers versus a few large SOEs, banks’ credit risk decreases. Moreover, the foreign exchange reserve has grown by leaps an bounds, which also bolsters depositors’ confidence in the liquidity of the system. I agree with you that the Chinese system is one giant confidence scheme. I just think that there is still enough confidence to go around.