China's Economy

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Numerous big developing nations have been destined for economic greatness but a weak financial system has been a downfall for them. India and China both suffer from financial shortcomings. India, which suffered a financial crisis requiring International Monetary Fund intervention in 191, still posts runaway public budget deficits as both the federal and state level (Engardio 203). Weighed down by mountains of bad debt markets remain underdeveloped for China’s banking system. Only currency and capital controls, many experts believe, immunized China from the contagion of the Asia financial crisis of 1997 (Engardio 203). China’s growth has dazzled the world, but the waste of money has not been as publicized. The profits from export trade and captive savings from its people China can invest recklessly. More that $3 trillion is placed inside Chinese banks, earning paltry interest, because the country’s capital controls and undeveloped capital markets prevent savers from investing it elsewhere (Engardio 205). China’s four biggest banks and thousands of local lenders have allocated the country’s cash poorly. Big bank loans built the more than 200 steel plants that China possesses. However, 85 of the plants produce 90% of China’s steel. China’s railways, on the other hand, are starved for money. The managers of these railways do not have the political connections that the steel plants have. This caused the Big Four to be created. The idea is that the foreign stakeholders will lend their expertise and., among other reforms, help straighten out the big Chinese banks’ loan books (Engardio 206). The Big Four and the government are not going to let foreign partners have any real control over management. Regular reports for which loans are paid and which ones are not are not being generated by the loan officers. Bad loan now account for 11% of the bank’s loan book (Engardio 208). Capital adequacy ration is at 2%, which is below the Chinese regulators 4%. The number one job for the SDB is to gain control over the bank’s branches in the major cities effectively. The cities include Shanghai, Beijing, and Chongqing. Due to this, the branch loan officers have to report to headquarters and a central credit committee to clear lending decisions. One issue that faces the SDB is how it will raise the capital that it needs. This capital will help it meet minimum capital requirements and upgrade its IT systems.

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