China Challenges directs us to an article in The Australian about the alarming amount of non—performing loans being carried on the books of Chinese financial firms. The amount is thought to exceed one trillion dollars, or a staggering 40% of GDP. Politics and corruption are to blame. The Australian comments The revelation shows that half—hearted reforms have addressed merely the symptoms of China's financial fragility. Poor business practices are blamed for NPLs but the real source is political. As long as the communist party relies on state—controlled banks to maintain an unreformed core of a command economy, Chinese banks will make more bad loans. 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...(Read Full Post)