“Never Own a Chinese Bank. Not at Any Price”

September 24, 2011


Those are the words of Justin Leverenz, the portfolio manager at Oppenheimer’s $22 billion Developing Markets (ODMAX).

The country’s gone through a series of credit booms in the last three years. Its state run banks went into overdrive during the 2008 financial crisis. A downgrade would not be as problematic as it is in more open economies, though its emotional impact on the market would be resoundly negative. The fact is, Chinese government banks can, and will, write-off bad loans and never require them to be paid if the underlying debt was so bad that it meant possible bankruptcy of a Chinese company. China’s top priority is keeping people employed, even at the expense of its main banks.

The book Red Capitalism went into detail on China’s fragile banking system.

[Chinese] banks are passive entities that absorb all the credit, interest and market risk involved in the government’s policy decisions.

HS : It’s only a matter of time before before Chinese banks will seek to raise capital and attempt to dupe foreign investors one more time.


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