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China’s Bank Loan Risks Are Soaring

The credit rating organization, Fitch Rating, said that Chinese banks are taking huge risks in providing loans to support the government’s plan to stimulate the economy. In the first four months of this year, under the push of the government’s infrastructure development plan, Chinese banks offered loans in the amount of Renminbi 5,200 billion yuan (762 billion dollar), surpassing the 4,900 billion yuan total bank loans for last year. Aggressively targeting profits is another reason for the increase in bank loans.

The Bank of China’s quarterly report said that its supervising arm is following up on the actual usage of the loans. Fitch Rating’s interpretation is that the government has lost control of the loans; otherwise it would know where the money went. It also pointed out that as the assets quality at China’s banks starts to deteriorate, more problems will surface down the road.

Source: BBC Chinese, May 21, 2009