Yesterday, Sanjay Jain, research analyst covering Chinese banks for Credit Suisse, wrote a negative report on that sector. Bad loans to real estate companies, manufacturers, local governments and small/medium entreprises would cause losses of 40% to 60% of equity capital in the coming years. I am surmising that many were made during the credit crisis of 2008 when the central government ordered banks to loan money to stimulate the economy. The MSCI China Financials Index is down by as much as 43% in 2011. To support the sector, Central Huijin Investment Ltd, part of China's sovereign wealth fund, is buying shares of the four largest banks. The China Banking Regulatory Commission is watching the banks closely in case real estate prices start to fall as part of their effort to cool that market.
The source for this article can be accessed here.
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