Latest News:  
Beijing   Overcast    28 / 17   City Forecast

Home>>China Business

Chongqing economic model ‘unsustainable'

By Cong Mu (Global Times)

14:31, May 07, 2012

Chongqing's investment-driven growth model involving large debt borrowing has accumulated considerable default risks in its financial system, which can turn into a crisis during the current economic downturn, an economist said yesterday.

"China Development Bank's Chongqing branch has recorded a low non-performing loan (NPL) ratio over the past seven years, because the local economy has been growing, and there was new growth to sustain interest payments," Tian Yun, an economist at China Society of Macroeconomics under the National Development and Reform Commission, told the Global Times.

As of the end of March, the Chongqing branch of China Development Bank, one of the country's largest policy banks, had outstanding loans of 122.9 billion yuan ($19.5 billion), and its NPL ratio stood at 0.1 percent, lower than 1 percent for the seventh straight year, Guo Dong, president of the branch, told people.com.cn Thursday.

Bad loans may rise as the economy continues to slow down, and signs can already be found on a national level in commercial banks' first-quarter financial results, Tian said.

Commercial banks such as China Minsheng Banking Corp and Shanghai Pudong Development Bank all reported higher NPL ratios in the first quarter from the end of 2011.

Meanwhile, the commercial banks set aside an additional 246.1 billion yuan in total for bad loans last year, taking the total loan loss provision in 2011 to 1.2 trillion yuan, the China Banking Regulatory Commission said in its annual report in April.

The Chongqing model "doesn't extend the sustainability of China's growth model. The local cost of the surge in investment was spread out to the entire country through the banking system," Michael Pettis, a finance professor at Peking University, wrote in a newsletter in April.

Chongqing Land Group, owned by the municipal government, received a green light on April 23 to issue 5 billion yuan in corporate bonds for affordable housing construction, the biggest such issuance so far, Guangzhou-based Nanfang Daily reported.

However, for the Chinese banks, mostly State-owned, there is always a way out even if their default rates eventually rise, because the central government can help roll over the bad debts of local governments, and the failed projects can be recapitalized, Tian said.

Tian urged the opaque local government financing platforms to increase transparency and the government to make laws to regulate these risky financing methods, because "the worst that can happen to the banking system is to fail twice over the same issue."

Email|Print|Comments(Editor:厉振羽)

Leave your comment0 comments

  1. Name

  

Selections for you


  1. China launches Tianhui I-02 mapping satellite

  2. Tainted capsules, tarnished image

  3. A celebration of all the tea in China

  4. 11th T-storm Runway Show of BFSU kicks off

Most Popular

Opinions

  1. A neutral US helpful to stability in S China Sea
  2. Tourism authority warns of low-cost package tours
  3. Have you felt anxious recently?
  4. Central bank's rise comes at economy’s expense
  5. How to deal with 70,000 boxes of defective Coke?
  6. Foreign airlines optimistic about Chinese market
  7. Stagflation poses real threat to economic growth
  8. EU commissioner looks to increase investment
  9. China's young generation not 'beat generation'
  10. New dynamic for China-EU ties

What's happening in China

Sustained drought affects Baise of Guangxi

  1. Saturation point for mobiles?
  2. Animation industry 'still lagging'
  3. Hot summer may break short spring record
  4. 'Cancer village' publicity a double-edged sword
  5. Rule-breaking wedding cars draw complaints

PD Online Data

  1. Spring Festival
  2. Chinese ethnic odyssey
  3. Yangge in Shaanxi
  4. Gaoqiao in Northern China
  5. The drum dance in Ansai