Can you provide a link to recent data? Shanghai’s Q1 GDP release was quite dismal, much worse than China overall.

What we are seeing right now in the United States are consumers who are tapped out. The reason that they are not borrowing is not because of a new-found saving religion, but rather an inability to borrow. Again, that’s not the fault of the banks, but the consumers themselves, many of whom are upside-down.

Regardless, everyone (including the PBoC) agree an increase in domestic consumption is the only long term answer. That’s why they are building the new social safety-net and pushing the message that spending is a patriotic duty. But this is not an easy transition for a country deeply rooted in a culture of thrift and caution.

The Watershed was the appointment of an independent Head to the CBRC in 2003 with political clout and cabinet level rank. His first act was to appoint a blue ribbon panel of experts (Volker, Eddy George, etc). Their first concrete actions were to ENFORCE better accounting and disclosure standards (including international NPL classifications).
Carrot and stick incentives were then introduced to restructure bank’s internal operations and to improve internal controls and management to qualify for “selective” debt write-downs and capital injections and early stockmarket listings.
The banks also made strenuous efforts to raise capital by issuing shares and subordinate debt.
The other pillar of the strategy was foreign entry in advance of China’s WTO commitments — to tap foreign management and technology (at the time that HSBC entered a joint venture with Comm BoC value added per employee was 1/8th of HSBC’s ! Their latest annual report shows the huge progress made in matching HSBC standards).
A string of high profile joint ventures have followed with improvements in productivity and profitability. I have already noted the sea change in meeting BIS capital requirements, the trend decline in NPLs and bad loan provisionning, etc.

But as you rightly mention a big remaining problem is potential new NPLs from loss-making SOEs and speculative bubbles in real estate, etc. But progress is being made even here.
Bankruptcy was virtually unknown a decade ago. But the new insolvency law in 1994 has seen a sea change. Since 1994, more than a half of the most inefficient SOEs have been closed or given to their workers (after writing off their debt). The number of small and medium size SOEs has dropped from 238 000 in 1993 to around 120 00 currently. (The biggest SOEs are of course mammoth National Champions that live off monopoly rents and hence have no financing problems. This was the policy of “grasp the large and free the rest”.)
That said, China is far from having a bankruptcy system that promotes efficient debt workouts, debtors in possession arrangements or recycling of damaged assets to new managers or that compensates creditors and stakeholders in an even handed way. It is work in progress.
Even so, a smaller more efficient SOE sector alleviates many of the NPL strains you mention. The flipside of this is also a dynamic “private” sector which may now be as large (in terms of share of GDP) as the USA’s (if you include the on-going bail outs of almost every thing). Recent OECD estimates by memory put the Chinese private sector at almost 2/3rds of GDP.
As regards the credit fueled 2001-05 boom in infrastructure and housing — the CBRC has not been completely asleep at the switch. From 2005, forward risk-based capital adequacy ratio requirement were implemented (unlike the pro-cyclical ones in place in the US/UK). Similarly, reserve requirements were raised steadily from 2006-07. Moreover, administrative guidelines targeted at overheating sectors (cars, steel, cement, basic materials and real estate) were put in place.
To be sure, these quantitative measures did not eliminate the boom bust cycle, but they probably damped it (c.f. the stockmarket) — which is more than the Bank of England and FED achieved !
The Chinese banking system has a long way to go to reach world standards –and to improve credit flows to the private sector. The CBRC and PBOC have big challenges to cope with slower growth and NPLs — but as “quantitative” measures are now the vogue — the Chinese are surely better placed at this then the US and UK.
Yours faithfully, James
PS: property prices in Shanghai are apparently on the mend along with industrial output.
PS’ If you are looking for lending data to the private sector check out Farrell and Lund “Putting Capital to Work” FEER 2006. They have probably made more recent estimates but my filing system is also work in progress.

in my experience, Chinese banks are almost certainly piling up major NPLs. Bank loans from the Big 5 banks appear to be allocated to 3 sectors:

1) productive infrastructure investments, which are channeled through govt bureaus & SOEs (and suffer loss in the process)

2) non-productive government patronage, like setting up an SOE staffed with retired bureaucrats and armed with a goverment mandate or monopoly which it can borrow against

these first two are the recipients of a major portion of the recent bailout but it is the third which is most damaging

3) most bank loans – even to govt entities – are backed by real estate collateral. i would bet chinese banks have a proportion of assets backed by real estate collateral than US banks did by securitized mortgages. What happens to those NPLs if real estate values drop by 20%?