I guess my more crucial question is something I’ve been wondering for a while: how much of Korean investment into China is in largely or predominantly Korean areas? A friend of mine just did a journalistic field study of the Korean Autonomous Prefecture, and it looks a lot like it’s turning into a provincial Korean city–which could be both good and bad.

Anyway, interesting point about how a lot of the “foreign” capital is just Chinese capital being recirculated back in, if that’s true.

http://www.ChinaLawBlog.com

I disagree about the China’s banking system, though. I think it’s 2007 when foreign banks can start taking domestic Chinese deposits. The locals no how bad the Chinese banks are and this change in rules could cause a run on some Chinese banks which would cause chaos. I’m sure the Chinese government will do its best through rules and reforms to prevent this. However, the banking problem and other problems in China make its economy susceptable to outside shocks. I wouldn’t be surprised if they go boom-bust for a couple of generations.
As for proletariat, bourgeois, nuevo-rich, or whoever rising up and denouncing the communist, I must confess ignorance. People just want to get wealthy and not have the local boss siphon their funds. I think it’s less about democracy and more about corruption.

“This last point was — and remains — of critical importance to the Chinese Politburo: they know what can happen when the proletariat rises in anger. That is, after all, how they became the Politburo in the first place.

The cost of keeping the money circulating in this way, of course, is that China’s state firms are now so indebted as to make their balance sheets a joke, and the banks are swimming in bad debts — independent estimates peg the amount at around 35-50 percent of the country’s GDP. Yet so long as the economic system remains closed, the process can be kept up ad infinitum: After all, what does it matter if the banks are broke if they are state-backed and shielded from competition and enjoy exclusive access to all of the country’s depositors?”

Firstly the first paragraph is mostly rhetoric. The Communist Party of China did not gain power as a result of the prolitariet but rather due to successful military action against the Nationalism Army and rural peasant support for its platform of land reform and redistribution.

Forgoeing that minor quibble, the second paragraph also reveals two significant errors. First, China’s non-performing loans are not 35-50% of total GDP. What it should be is that non-performing loans are 35-50% of TOTAL loans. The “independant” estimates which the author cites but doesn’t identify (probably because he didn’t even bother to check) are S&P estimates for 2002 and 2004. S&P estimated the total percentage of non-performing loans as being 50% in 2002 but improved down to 35% in 2004. Still nearly double the official figures though an improvement. The CBRC (China banking regulatory commission) also noted a decline in the percentage of non-performing loans of the four principal chinese state banks as down to 8.71% as of the third quarter of 2005 from the 12.85% at the beginning of 2005. Now of course those banks are probably a lot healthier than many of the smaller institutions but they are by far the largest banks in China. The total estimated sum of all non-performing loans in China is 157.83 billion US dollars, at least according to the CBRC.

The author is also significantly wrong on the impact of market liberalization on the Chinese banking system. Rather than destroying the state banks, entry requirements for the WTO have seemed to facilitate in banking reform which has reduced the percentage of bad debts. China’s banking system is still problematic, but the trend is improving rather than deteriorating.

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