Friday, December 19, 2008

Chinese Banks' Great Leap Backward -

In the department of what else can we worry about? The WSJ suggests that Chinese banks are being pressured to take some major chances.

Chinese Banks' Great Leap Backward -
"...risk-prevention institutions built up over the past decade are now under enormous pressure to forgo prudence in the interest of maintaining economic growth. There have been two triggers for this. First, the global recession caused a plunge in demand for Chinese goods -- in November, Chinese exports fell for the first time in nearly a decade. At the same time, the property market continues to shrink in many major Chinese cities.

Anticipating a declining economy, in November the central government announced a four trillion yuan ($586 billion) stimulus package to be carried out in the next two years....

Banks are trapped in the middle, because they will finance much of the stimulus package. Of the four trillion yuan stimulus, only about a quarter will be financed by the government's central budget."
It would be make for a great discussion in a Money and Banking class.

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