The Chinese banking accident waiting to happen

An IMF report suggests Beijing is storing up huge problems in its disordely and opaque financial sys

A number of newspapers yesterday reported a warning by the International Monetary Fund about the health of China's banking sector. I'm surprised it hasn't been more widely discussed in the context of the generally dismal outlook for the global economy.

The IMF's analysis has some quite frightening implications. The general message is that the Chinese financial sector is full of hidden liabilities and is vulnerable to shocks from the bursting of a property bubble. It is written, as IMF reports always are, in arid technical prose, but the picture that emerges is one of a system that has become bloated and irresponsible thanks to a lack of regulatory and commercial rigour. Anyone know any other financial systems that meet that description?

The system is becoming more complex and inter-linkages between markets, institutions, and across international borders are growing. In addition, informal credit markets, conglomerate structures, and off-balance sheet activities are on the rise.

The scale of the risk was hard to assess because of a shortage of good data, which hardly encourages a generous interpretation of the situation.

Perhaps most alarming is the suggestion that Chinese banks have made heaps of loans based on political rather than commercial imperatives.

Banks' large exposures to state-owned enterprises, guaranteed margins provided by interest rate regulations, still limited ability and willingness to differentiate loan rates, coupled with the implicit guidance on the pace and direction of new lending, undermine development of effective credit risk management in the banks. It is important that banks have the tools and incentives to make lending decisions based upon purely commercial goals.

Given China's well-documented problems with corruption, that would imply that Chinese bankers have been doling out cash to their patrons and friends in state-owned companies. That situation can run along unchecked for a while, but at some point in its transition to a functional market economy Beijing will have to enforce some discipline in terms of which enterprises are bona fide and which are unprofitable make-work schemes - or worse, empty shells funneling cash to corrupt officials - supported by loose credit. It sounds as if any serious rigour along those lines would risk bank failures and even a systemic financial crisis. That can't be good.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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You may call me a monster – but I'm glad that girl's lemonade stall got shut down

What's wrong with hard-working public servants enforcing perfectly sensible regulations?

Who could fail to be moved by the widely shared tears of a five year old whose innocent lemonade stall was brutally shut down by evil bureaucrats? What sort of monster would not have their heartstrings tugged by the plaintive “I've done a bad thing” from a girl whose father tells us she “just wanted to put a smile on people's faces”?

Well me, actually.

There are half a million cases of food poisoning each year in the UK, and one of the reasons we have stringent controls on who can sell food and drink, especially in unsealed containers, is to try to cut those figures down. And street stalls in general are regulated because we have a system of taxation, rights and responsibilities in this country which underpins our functioning society. Regulation is a social and economic good.

It’s also pretty unfair to criticise the hard-working public servants who acted in this case for doing the job they are no doubt underpaid to do. For the council to say “we expect our enforcement officers to show common sense” as they cancelled the fine is all very well, but I’m willing to bet they are given precious little leeway in their training when it comes to who gets fined and who doesn’t. If the council is handing out apologies, it likely should be issuing one to its officers as well.

“But these are decent folk being persecuted by a nanny state,” I hear you cry. And I stand impervious, I’m afraid. Because I’ve heard that line a lot recently and it’s beginning to grate.

It’s the same argument used against speed cameras and parking fines. How often have you heard those caught out proclaim themselves as “law-abiding citizens” and bemoan the infringement of their freedom? I have news for you: if you break the speed limit, or park illegally, or indeed break health and safety or trading regulations, you are not a law-abiding citizen. You’re actually the one who’s in the wrong.

And rarely is ignorance an excuse. Speed limits and parking regulations are posted clearly. In the case of the now famous lemonade stand, the father in question is even quoted as saying “I thought that they would just tell us to pack up and go home.” So he knew he was breaking the rules. He just didn’t think the consequences should apply to him.

A culture of entitlement, and a belief that rules are for other people but not us, is a disease gripping middle Britain. It is demonstrated in many different ways, from the driver telling the cyclist that she has no right to be on the road because she doesn’t pay road tax (I know), to the father holding up his daughter’s tears to get out of a fine.

I know, I’m a monster. But hooray for the enforcers, I say.

Duncan Hothersall is the editor of Labour Hame