The Rise and Fall of Abacus Banking in Japan and China phần 9

The Fall of Abacus Banking in China 135 employed rural migrant workers are added, China’s official unemploy-ment rate of 3 percent jumps to close to 10 percent.11 In fact, China’s unemployment rate increased from 3.3 percent in 1993 to 8 percent in 1998.12 As expected, price destruction took its toll on one of the country’s exports, especially after the Asian crisis. In 1998, for instance, China’s exports fell to around 7 percent, one-third of the previous year’s growth. Compounding the problem of slower export growth, the Asian crisis scared away foreign investors, making it difficult for its allying SOEs to raise capital through initial public offerings. By 1997, direct foreign in-vestment had fallen to half of its 1995 size, while exports slowed down (see Exhibits 6.4 and 6.5). With both exports and foreign investment slowing down, China’s ec-onomic growth came down to earth. Indeed, economic growth declined from its 14 percent peak in 1993 to around 8 percent in 1999 (see Exhibit 6.6). In short, China’s lack of an expanding international and domestic fron-tier and her inability to innovate have taken their toll on her economy, most notably on her SOEs, which have been faced with declining prof-itability. Indeed, SOE profits declined from RMB80 billion in 1994 to RMB20 billion in 1998 (see Exhibit 6.7). With declining profits, SOEs con-tinued to rely on state banks, both for short-term (working) capital and medium-term capital. Indeed, in 1997, close to 90 percent of state bank capital was allocated to finance the capital needs of SOEs (see Exhibit 6.8). Reflecting the heavy SOE borrowing from banks, the debt-to-equity ratio of some SOEs has exceeded 500. In practice, such a heavy debt burden means ‘‘that many of China’s state-owned firms are insolvent— some cannot even cover their operating costs with their income.’’13 Worse, such loans were made at below deposit rates, turning the in-terest rate spread negative. Indeed, from April 1990 to January 1995, the gap between the average deposit rates and lending rates for ten-year loans ranged between 0.36 and 4.32 percentage points.14 The Chinese government sets many interest rates according to industrial or broader policy objectives rather than according to commercial ones, and the com-mercial banks are still obliged to carry the loans at the dictated rates. Moreover, the commercial banks’ biggest burden is unrecoverable working capital loans to defray public enterprise losses.15 In addition, the country’s economic slowdown has taken its toll on the central and provincial governments, which also turned to banks to fi- Exhibit 6.4 Foreign Direct Investment in China (1995–1997) Source: State Statistical Bureau (various years). The Fall of Abacus Banking in China 137 Exhibit 6.5 China’s Trade (1992–1997) Source: State Statistical Bureau (various years). nance their spending, an issue that will be further addressed in the next chapter. Reflecting the increasing reliance of both SOEs and government on bank financing, when the economy slowed down, M2, a broad measure of money supply took off (see Exhibit 6.9). Such monetary expansion in turn fueled China’s own economic bubble—Securities markets, both in Shanghai and in Hong Kong, soared. Between 1994 and 1997, for in-stance, the number of listed companies in the Shanghai and Shenzhen increased from 291 to 745, daily volume trade increased from $400 mil-lion to $1.65 billion; and market capitalization increased from $42.2 bil-lion $211.2 billion.16 Real estate prices also rose in Hong Kong, both before and after the Chinese takeover. In fact, a land auction that took place at the end of August 1997, less than two months after Hong Kong Exhibit 6.6 Real GDP Growth (1994–1999) Source: State Statistical Bureau (various years). Exhibit 6.7 SOE Profits (1994–1998) Source: ‘‘China at a Loss: Giant on the Way to Reform,’’ Nihon Keizai Shimbun, April 30, 1999. Reprinted with per-mission. ... - tailieumienphi.vn