China: Setting the Pace
Nowhere are the changes in Asian banking practices more
evident — or more sweeping—than in China.
China's past and it's FUTURE meet on a
busy Bejing street
Over the past ten years, China is perhaps the most dramatically changed country in Asia—if not in the world. Since beginning the transition from a state-controlled economy to free markets in the mid-90s, China has seen rapid economic growth, now averaging at about 9% annually over the last decade, coinciding with the spread of personal wealth. And its banking system has undergone a sea change.
Under the Communist system, China’s banks were nothing more than an arm of the state—banks in name only—that served to dole out government financing for projects. Even as the country emerged from Communist control, its banking system remained rudimentary. China kept its capital account closed, which kept savers from investing money outside the country. With its fledgling stock market deemed far too risky, China’s depositors had virtually no alternative to the state-owned banks. Most of the banks’ capital was tied up in long-term fixed assets, mainly infrastructure projects without positive cash flow. Officially-disclosed figures pegged China’s NPLs at near $330 billion in 2000, representing roughly 28% of GDP at that time. In the intervening years, substantial government efforts to clean up those NPLs have brought the tally down to $160 billion in 2006; yet some private market estimates would still place that figure as high as $650 billion.