Jun 27, 2012 01:44 PM

Is the Financial System to Blame?


Starting from the more developed, east coast, banks in China are now experiencing or will soon experience a significant growth of non-performing loans.

I boldly predict that in the coming half year, the Chinese banking industry will encounter the following three problems. First, the overall annual profit growth rate of the banking system will drop by ten percentage points or more due to the effects of non-performing assets on their capital and lending ability. Second, following the emergence of risk on local government fundraising platforms in 2011 and problems in private guarantee and finance institutions in 2012, banks will inevitably run short on desirable clients. This will further exaggerate credit concentration and make banks even more stingy in making loans. Third, China is about to experience credit crunches and deflation just as it did after 1999.

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