Chinese State Banks Are Politically Connected

Stop indulging China’s banks or risk another crisis
But it is politically difficult for Chinese banks suddenly to acknowledge a much higher level of bad debt, let alone to write them off. In any case, the tax men will not allow it.

The banking sector is the country’s biggest taxpayer, accounting for more than 60 per cent of all revenues. If the banks admit to holding a much higher percentage of bad debts and write them off, their net profit will collapse and so will their ability to pay their taxes.

The only realistic way to contain the Chinese credit bubble is to starve the banks of new capital. Here are three proposals for how to achieve this.

Reminds me of this: Wen Jiabao: With common purpose, the central government will smash the banking monopoly

The banks are politically connected and it goes well beyond the taxes they bring it. The banks are the competitive advantage used by many state owned companies. To refuse to indulge the banks is really to refuse to indulge the party members who benefit from them.

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