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China Considers Bailout of Some Banks - 2003-05-29


China's government is considering another bailout of its biggest commercial banks to help them get rid of a huge burden of bad loans. Banking experts say that the loan problem could hurt China's economic growth.

China Banking Regulatory Commission Chairman Liu Minkang says the government is considering another round of help for the country's four largest banks. He says the government might transfer the bad loans to asset management companies, or AMCs, and give the banks more money.

A previous bailout saw the government put more than $30 billion of capital into the banks and transfer billions of dollars worth of other bad loans to AMCs that reorganize or sell companies, and take other steps to recover loan money.

The government previously ruled out another round of help, fearing it would hurt banking reforms aimed at preventing bad lending decisions. But the banks argue that the bad loans were made mostly to state owned enterprises at the government's direction, so it is reasonable to ask the government to help clean up the mess.

Mr. Liu says several years of reform have cut the number of bad loans at the biggest banks to about 24 per cent. But Mr. Liu says the banks must still make vigorous efforts to improve the way they do business and make loan decisions. He says the banks hope to slice another three or four per cent off their bad loans over the next 12 months.

At a news conference Thursday in Beijing, Mr. Liu said the SARS crisis has had some negative impact on China's economy, which will become evident in the next few months. But top Chinese officials say economic growth will remain strong.

China's government is encouraging banks to give industries hard hit by SARS, like tourism and airlines, preferential loan treatment. But recent banking reforms mean loans are now supposed to be made on the basis of a business's ability to repay at a profit rather than its political suitability. That means the government is issuing a suggestion, not an order.

Financial experts say China must work quickly to shore up its banks because a modern, efficient banking system is crucial to economic growth and political stability.

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