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Bad Loans In China

This article was written by in Investing. 2 comments.

Are you invested in China? According to this article, the Chinese economy isn’t exactly sound. If the author of the article, Minxin Pei, is correct, I don’t see how China would make a good long-term investment.

Systemic economic waste, bank lending practices, political patronage and the survival of a one-party state are inseparably intertwined in China. The party can no longer secure the loyalty of its 70 million members through ideological indoctrination; instead, it uses material perks and careers in government and state-owned enterprises (SOEs). That is why, after nearly 30 years of economic reform, the state still owns 56 per cent of the fixed capital stock. The unreformed core of the economy is the base of political patronage.

More than $900 billion is invested through the Chinese economy in bad (non-performing) loans. If you invest in China through mutual funds, your money is in the mix somewhere symbolically if not directly.

Updated August 9, 2011 and originally published May 9, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 2 comments… read them below or add one }

avatar frugal

I agree with you. The bad loans in China are in terrible shape. But China government is doing smart things about it, by selling bad loans, and share of interests in the government-owned bank off to all those investors who are so eager to get a piece of action in China. Eventually, someone will end up with lots of loss.

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avatar Making Our Way

Right on target, bad loans in china are not only a week financial column holding up the chinese economy, they are also a significant source of government subsidy to state sponsored businesses.
Once these loans eventually tighten up, what will happen to the inefficient businesses that have grown up accustomed to them?
Investor beware, one day this bubble will pop. Maybe it will grow so large the pop won’t let out all of the steam?
have a wonderful day,

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