Mar 15, 2012

China's Wen Admits Banking System Dysfunctional

China's outgoing premier Wen Jiabao seems to have struck a sentimental note in his closing remarks at the NPC (China's parliament). This is completely normal but what is a bit surprising is that he pretty much admits China's system of financial intermediaries is dysfunctional. According to Caixin he said:
The problem is that companies, especially the smaller ones, need huge amounts of capital but, banks can't satisfy them. Meanwhile, the market is awash with private capital seeking opportunities."
China's state-owned banks pay negative real rates to depositors, while funneling capital to strategic
industries chosen by the political leadership. Thus they create a vacuum on both sides and this causes the emergence of "private financing", which is a death-sentence crime, as a young entrepreneur, Wu Ying, found out earlier this year.

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