Chinese Banking Fraud, Western Naivety & Greed - Part I
We have previously commented on the "puffery" and media hype coming out of and regarding the Chinese economic system.
Many dubious and suspect numbers get bandied about regarding Chinese GDP, corporate financial statements and the "banking" system.
This series taken from Bedlam Asset Management will point towards the potential importation of an international banking disaster from China.
Remember Golmud, and Mass Hysteria
High up on the Tibetan plateau at 10,000 feet lies the City of Golmud, isolated even by the standards of that barren land. With no airport and at least 16 hours from the nearest sizeable town by the fastest possible transport, the Han Chinese immigrants (imported to colonise the once free country of Tibet) of this fair city take their pleasures where they can.
One is to leave as soon as possible, made difficult by China's strict internal passport controls. More practical suggestions include a stroll to the local potash plant, the City's principle industry, a visit to the Cai Erhan Salt Lake, or to a giant half-empty dam (it doesn't rain much) or the hopelessly inefficient methanol plant.
In this centrally planned, neo-Stalinist nirvana, you can also wander through a maze of poorly constructed monumental buildings while sipping Golmud's exciting variety of toxic waters, available from the many corner stand-pipes; for as in most of China, environmental controls are non-existent.
Yet it is not for all these delights that the city of Golmud deserves its own special entry in the Financial Hall of Fame. It is because its entire banking system has just collapsed.
Run Banker, Run
In early May, the Kunlun Credit Co-operative in Golmud suffered a run by depositors, on rumours that its cash balance was down to $1,500. The panic quickly spread to the seven other credit co-operatives, whose tills were also empty, resulting in widespread rioting.
All eight financial institutions closed down; by early June, the central Government belatedly embarked on a rescue plan. The cause for the collapse was simple. Prolonged fraud, on a massive scale, by senior bank officials operating hand in hand with Communist party cadres.
According to official estimates, non-performing loans for the eight lenders were 96%; the worst had a capital adequacy ratio of minus 189% at the end of 2004. Almost all of these loans had been given to bank directors and senior apparatchiks (usually the same thing) at no interest cost, most of whom then disappeared.
No arrests have been made. The total amount of money stolen was tiny, probably no more than $20 million; not an earth-shattering sum for China or anywhere else, merely the life savings of the entire population.
In Part II we will examine how naive western bankers "solved" China's problem.
Many dubious and suspect numbers get bandied about regarding Chinese GDP, corporate financial statements and the "banking" system.
This series taken from Bedlam Asset Management will point towards the potential importation of an international banking disaster from China.
Remember Golmud, and Mass Hysteria
High up on the Tibetan plateau at 10,000 feet lies the City of Golmud, isolated even by the standards of that barren land. With no airport and at least 16 hours from the nearest sizeable town by the fastest possible transport, the Han Chinese immigrants (imported to colonise the once free country of Tibet) of this fair city take their pleasures where they can.
One is to leave as soon as possible, made difficult by China's strict internal passport controls. More practical suggestions include a stroll to the local potash plant, the City's principle industry, a visit to the Cai Erhan Salt Lake, or to a giant half-empty dam (it doesn't rain much) or the hopelessly inefficient methanol plant.
In this centrally planned, neo-Stalinist nirvana, you can also wander through a maze of poorly constructed monumental buildings while sipping Golmud's exciting variety of toxic waters, available from the many corner stand-pipes; for as in most of China, environmental controls are non-existent.
Yet it is not for all these delights that the city of Golmud deserves its own special entry in the Financial Hall of Fame. It is because its entire banking system has just collapsed.
Run Banker, Run
In early May, the Kunlun Credit Co-operative in Golmud suffered a run by depositors, on rumours that its cash balance was down to $1,500. The panic quickly spread to the seven other credit co-operatives, whose tills were also empty, resulting in widespread rioting.
All eight financial institutions closed down; by early June, the central Government belatedly embarked on a rescue plan. The cause for the collapse was simple. Prolonged fraud, on a massive scale, by senior bank officials operating hand in hand with Communist party cadres.
According to official estimates, non-performing loans for the eight lenders were 96%; the worst had a capital adequacy ratio of minus 189% at the end of 2004. Almost all of these loans had been given to bank directors and senior apparatchiks (usually the same thing) at no interest cost, most of whom then disappeared.
No arrests have been made. The total amount of money stolen was tiny, probably no more than $20 million; not an earth-shattering sum for China or anywhere else, merely the life savings of the entire population.
In Part II we will examine how naive western bankers "solved" China's problem.
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