SYDNEY—Top Chinese banking executive denied bad loans is a problem for Chinese banks but admitted their banking system is not meeting international standards in many ways at the APEC business summit in Sydney.
Mr Zhu Min Executive Assistant President of the Bank of China told a delegation of business leaders at the APEC business summit that the Chinese banking system is much stronger than before with more assets but admitted that it is a huge challenge to bring it to an international model.
"It is still weak, in a risk management sense, (indistinct) framework and the transparency of governance"
"It is a huge challenge for China." Mr Zhu said.
Many economists agreed that one of the biggest problems in China's banking system is the high level of bad loans or non-performing loans (NPLs).
When asked by The Epoch Times the NPLs situation in China, Mr Zhu said the NPLs is now only "around 7 percent" which is the figure commonly quoted by Chinese officials.
Economists generally felt the official numbers are too low compared to estimates by international institutions.
Dr Elliott Fan, an economist from the Social Policy Evaluation, Analysis and Research Centre at the Australia National University told The Epoch Times, "In the past years all figures released from the Chinese authorities regarding NPLs are way below the estimates done by the best international rating agencies such as Standard and Poor's, Fitch Ratings and Ernst & Young".
Standard & Poor's estimated NPLs with the entire Chinese banking sector at 31 per cent of all banking assets, or some $US700 billion in May 2005. In 2006, Fitch Ratings quoted a figure of 60% GDP for the NPLs amount in China.
For the year 2006, Moody's Global Credit Research rated the average bank financial strength rating of E+ for Chinese banks, one of the lowest on Moody's global scale.
To understand the reason for the bad loan problem, a report from the International Assessment and Strategy Center noted that the Chinese NPLs problem stemmed from the fact that the Communist regime owns almost every bank in China.
The situation is partly created by the communist authorities providing loans to loss-making State Owned Enterprises (SOEs) and the extensive corruptions practice across the banking sector when astronomical amounts of money are simply stolen.
In 2005 alone, two thefts by officials were reported in China Construction Bank, where one stole $US65 million and another one took $US8 million, which lead to the imprisonment of Zhang Enzhao in 2007, the former president of China Construction Bank Corporation, where he was sentence to fifteen years in prison on charges where he had taken bribes to arrange loans.
At the business summit, Mr Zhu was also asked by The Epoch Times to comment on whether he will believe banking sector reform will be successful without political reform and real actions on corruption, he did not comment and simply replied there is consensus that systematic risk is no longer an issue for Chinese banking system.
Dr Fan said there is no consensus on systematic risk and warned to be cautious about any figures from the Chinese authorities.
"There is absolutely no such a consensus that systematic risks are no longer an issue for Chinese banking."
"The only consensus for economists is that China's banking system is highly risky and their figures are unreliable," Dr Fan said.
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