What to expect from a Chinese credit crisis

Author: Ashley Lee | Published: 7 Nov 2013
  • China had a credit crisis in 1999 and the early 2000s, but at that point its banks had less international business. A credit crisis now would heavily impact the global banking system;
  • Aside from shadow banking, moral hazard is an issue for Chinese banks. Many executives are not held accountable for bad loans on the banks’ books;
  • The asset management companies that bought state-owned banks’ bad loans at face value during the last credit crisis may be utilised again;
  • But these asset management companies now have foreign investors, which would make it more difficult for the Chinese government to resort to the same restructuring methods as in the past.

China’s June credit crunch highlighted increasing risks in its banking system. Although many believe that the government would support its largest banks, there is increasing debate about what would happen if a credit crisis were to occur.

A poll at...