China's Nonperforming Loans: A $540 Billion Problem Unsolved
22 Pages Posted: 4 Oct 2008 Last revised: 3 Mar 2009
Date Written: October 3, 2008
China's banking industry has grown rapidly over the past three decades. As the major source of funding for Chinese enterprises (especially state-owned enterprises), the banking sector has helped finance the nation's transformation from a centrally planned economy to a market-oriented economy. In the meantime, large amounts of nonperforming loans have accumulated on the balance sheets of Chinese banks, partly due to the cost of reform, partly due to poor management and inadequate regulation. In 1999, four asset management corporations were established to resolve the nonperforming loan problem. As stated in their charters, these asset management corporations would cease operation by the end of 2009. It is therefore of interest to examine the progress they have made in disposing of nonperforming loans. In this paper, the author attempts to draw a picture of how the nonperforming loan problem has developed since mid-1990s, provide an estimate of the total nonperforming loans held by Chinese financial institutions, and assess to what extent these bad assets might pose a threat to the country's financial stability.
Keywords: China, Bank regulation, asset management corporations, nonperforming loans, NPL
JEL Classification: G18, G21, O16
Suggested Citation: Suggested Citation