China is urgently trying to whip its woeful banking system into fighting trim before it begins competing with far more disciplined foreign banks in just over two years to honor commitments made to the World Trade Organization.
The reform campaign is high profile, aggressive and harsh – just in September four bank officials were executed for corruption. It is also likely to fail.
Government officials are using the standard pre scriptions to clean up mismanaged banks slipping toward insolvency: removing bad loans from the books, restructuring organizations and trying to improve credit risk systems. But these usual medicines will do little to cure the disease afflicting Chinese banks and other remnants of the economy that are still controlled by the state.
Oversized, under-managed and enfeebled by long histories of funneling money to favored projects without regard to future results, these organizations are fertile ground for corruption. The traditional Chinese practice of “guanxi,” doing business on the basis of personal relationships instead of objective criteria, have turned these money-laden institutions into gold mines for the sleazy and well connected.
But some foreign corporations are ignoring the resiliency of the rotten business practices afflicting the sickest parts of the Chinese economy because of the country’s phenomenal annual 8 percent growth rate and the overpowering allure of tapping into what is potentially the largest consumer market in the world.
For this complete story, please visit Reform Campaign won’t Rescue China’s Banks.
