Tuesday, August 01, 2006
Three Reasons For A Recession By Year's End
ALTHOUGH China likes most of its numbers to be big, it has been trying to reduce one of them: the size of the bad loans burdening its banks. A report this month by Ernst & Young, a big auditing and consulting firm, therefore came as quite a shock. Ernst & Young, which does plenty of work on the mainland, claimed that China's stock of non-performing loans (NPLs) added up to $911 billion. This is more than five-and-a-half times the latest government estimate of $164 billion, published in March. The report deemed the country's big four state-owned banks, which are trying to attract international investors, to be carrying $358 billion of bad loans, almost three times the official tally. The People's Bank of China, the country's central bank, quickly attacked the research as “ridiculous and barely understandable”. This week an embarrassed Ernst & Young withdrew it, admitting that it was “factually erroneous” and that it had somehow slipped through the firm's normal checks. Ernst & Young says it plans to publish a revised version in due course. The authorities' savage reaction is easy to understand. Other commentators and consultants have published estimates of China's NPLs ranging from $300 billion to $500 billion without attracting similar condemnation. Ernst & Young's estimate stood out not only for its size but also for its timing. The central bank's rebuttal came on the very day that Bank of China, the second of the big four to attempt a stockmarket listing in Hong Kong, began its investor roadshow. Bank of China plans to raise $9.9 billion, even more than the $9.2 billion pulled in by China Construction Bank, which was floated last October. A third big bank, Industrial and Commercial Bank of China, hopes for $10 billion in September. Awkwardly, Ernst & Young is this institution's auditor—and as such had subscribed to the official, much lower estimate of bad loans.Bottom line: Try to dump as much of your debt as you can, while you can.
More blogs about politics.