Fixing China's Banks: The Next Round

No rest for China’s weary banking reformers. Over the summer, they got Agricultural Bank of China over the finish line, with the state-owned bank pulling off the world’s largest IPO. AgBank was the weakest of the Big Four state-owned banks, and with its listing all of the large Chinese banks are now publicly traded. No small accomplishment, given how the banks for decades existed simply as ATMs to direct money from the Finance Ministry to large, state-owned enterprises.

There’s still a lot of work for China to do before it has a well-functioning banking system, though. Next up: fixing the banks owned by local governments. These banks are important because traditionally they’ve been more innovative and have been more willing to lend to smaller, private-sector companies. One sign of what’s to come: China Daily reported last week that China Pacific Insurance, the country’s third-largest insurer, is going to invest $735 million in one of these local banks, Shanghai Rural Commercial Bank. The paper also reported China’s banking regulators are pushing M&A among rural credit cooperatives (RCCs). “RCCs have long been the weakest sector of the country’s financial industry,” the government paper said. “Financial experts estimate that nonperforming loans of the RCCs have reached 700 billion to 800 billion yuan ($102.74 billion to $117.41 billion).” Look for more news on this in the months ahead.

Read the original story at BusinessWeek Eye on Asia Blog