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China in the Global Economy

Edited by P. J. Lloyd and Xiao-guang Zhang

China in the Global Economy focuses on the theme of twin transitions occurring in the Chinese economy: the transition from a centrally planned economic system to a market oriented one, and from an agrarian to a modern industrialised society. China’s exporters face unprecedented competition in the world market and the flow of foreign direct investment has fallen restraining the growth of the domestic economy. These new challenges have fuelled debate on the perspective of the Chinese economy and its role in the global economy.
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Chapter 8: Non-performing debts in SOEs and the effect of policies aimed at their solution

Gangming Yuan


Gangming Yuan Since 1990, in the process of financial marketization and due to macroeconomic fluctuation, non-performing loans (NPLs) have become a serious problem for Chinese banks. State-owned enterprises (SOEs) utilize over 80 per cent of bank loans (PBC 1997).1 The large amount of non-performing debt (NPD) cumulated in SOEs increases the financial risk of banks and causes macroeconomic fluctuations. Based on data collected in a sample survey,2 this chapter will evaluate the current situation of NPD in SOEs, trace its causes and analyse the effect of policies aimed at resolving the problem. ESTIMATION OF NPD IN SOEs The NPD of SOEs has been discussed extensively in recent years. However, the exact situation of NPD in SOEs remains unclear. The state-owned commercial banks have given most of their loans to SOEs, so NPLs in SOEs should approximate those of banks. The data on the ratio of NPLs to total loans in state-owned banks, estimated informally by research institutes of the banks, usually range from 20 to 29 per cent (Xie Ping 1999; Liu Haihong 1999). The official figure for the ratio of NPLs in state-owned banks3 is 7.9 per cent, in which the ratio of slack loan and dead loans to all loans is 5 per cent and 2.9 per cent, respectively (Dai Xianlong 1998a, 1998b, 1999). ‘Alteration of Loan Period’ There is a problem with identifying the true NPL in all overdue loans in Chinese banks. Any loan exceeding the term of redemption is regarded in general...

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