The Rise and Fall of Abacus Banking in Japan and China phần 10

Exhibit 7.6 Bank Net Loans in China (1980–1997) (percent of total assets) Exhibit 7.7 Bank Net Loans in the United States (1980–1995) (percent of total assets) 156 The Rise and Fall of Abacus Banking in Japan and China and terms they offer for lending and have provided a range of services not offered by banks. They also had access to funding other than conventional de-posits and have provided stimulating competition to traditional financial insti-tutions.19 ITICS amassed huge amounts of funds both in the domestic and in foreign mar-kets for the purpose of financing provincial and local projects such as housing and commercial real estate projects. ITICs played an important role. They pro-vided funds to China’s less reputable companies that wouldn’t have access to domestic equity markets and foreign banks.20 Owned and controlled by provincial and local governments, which are often at odds with Beijing over the direction of economic policy, ITICs escaped from regulation and central government control, turning into some kind of discretionary, hidden reserves of local governments. ‘‘These TICs were born as a kind of hidden reserve for provincial gov-ernments. They were forced by local governments to make investments in local projects or give loans to local enterprises. They lacked self-discipline and monitoring by the central bank.’’21 In this sense, Their role in China’s financial system has been characterized by a series of cy-clical swings, with expansion and diversification being encouraged during cycli-cal upturns, only to have their numbers, growth and scope of activity tightened during more strained economic periods.22 SITICO, TITIC, and ZITIC are three cases in point. SITICO, for in-stance, is 85 percent owned by the Shanghai municipality and functions as a development bank in the Shanghai region, engaged in the financing of the local automotive company, hotels, real estate, and land develop-ment. TITIC is owned by the Tianjin municipal government and also functions as a local development bank, financing technology companies and real estate projects, and even trading unlisted stocks. ZITIC is owned by the Zhejiang provincial government and is engaged in the leasing, real estate, and hotel business. Escaping the close scrutiny of government regulators, as has been the case in other Asian countries, most notably with their counterparts jusen in Japan, ITICs have turned into speculative vehicles, financing bubble-prone sectors such as the construction sector (see Exhibit 7.8). In fact, the signs of over-construction are evident across China’s major cities, where many buildings are unfinished and abandoned, especially in Shanghai, where over 50 percent of buildings are vacant.23 According to Lardy, Exhibit 7.8 Production, Employment, and Establishments in the Construction Sector in China (1981–1996) 158 The Rise and Fall of Abacus Banking in Japan and China By the mid-1990’s, far too much had been built. Beijing, Shanghai, and Shenzhen appear to have the highest concentrations of unleased luxury villas and town-houses and first-class office space, but many smaller cities, ranging from Haiku on Hainan island to Beihai in Guangxi, have a significant problem of over-building.24 China’s excess capacity is also reflected in excessive duplication of ec-onomic activity (i.e., the establishment of companies producing similar products, just for the sake of creating employment for the excess labor). ‘‘Companies built too many office buildings, started too many factories and borrowed money during the boom years.’’25 In fact, in 1997, the Chinese government openly admitted that about half of its industrial product factories ran at 60 percent capacity. In short, as was the case in Japan, China’s banking crisis is the result of the rise and fall of abacus banking strategy. An editorial in Euroweek stated that Daunting difficulties of restructuring the country’s loss-making state owned en-terprises and increasing unemployment are straining the financial resources of China’s central and local governments and this weakens their ability to support the ITICs that they control.26 Hainan Development Bank is a good example of the rise and fall of abacus banking in China. The bank rose along with the economic growth of the Hainan province and also fell along with it. GITIC is another case in point. When the economy grew, the province was in a position to borrow heavily, both in domestic and international markets. ‘‘Guang-dong became a state within a state, a political fiefdom run by local lead-ers who paid lip service to Beijing.’’27 Without proper feasibility studies to evaluate the alternatives of economic resources, the province poured billions of dollars into small-town airports, dams, and commercial real estate that were never utilized, especially as the economy slowed down. Consider Zhuhai’s international airport. Costing $400 million to build, it handles less than a half dozen domestic flights a week, and therefore is grossly underutilized.28 China’s efforts to preserve growth in coastal provinces that formerly relied heavily on exports for their prosperity are reflected in the unequal growth of state bank loans. State bank loan growth to coastal areas, for instance, increased from close to 20 percent in 1990 to around 44 percent ... - tailieumienphi.vn