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Bloomberg story raises silver price suppression issue

Section: Daily Dispatches

Chinese Banks Face Crisis

By Nick Mathiason
The Observer, London
Sunday, May 16, 2004

http://observer.guardian.co.uk/business/story/0,6903,1217630,00.html

China's banking system faces a mounting crisis that
threatens to further destabilise the country's teetering
economy. Speculation is growing that the authorities
are preparing to inject at least $65 billion to shore up
two state banks reeling under the weight of
non-performing loans, where borrowers cannot even
afford to pay interest on loans, let alone the capital.

This comes just months after Beijing pumped $45
billion into its other two state banks. China is raiding
its foreign reserves to prevent a run on a major
Chinese bank and smooth the way for a flotation of
two of its banks later this year. This, however, looks
unlikely given the current state of the sector.

Last Friday's news that China's annual rate of inflation
in April hit 3.8 per cent -- a seven-year high -- is
increasing the likelihood of interest rate rises, which
would further exacerbate the debt crisis.

"The problem is very serious," said Allan Zhang, a
former economist at China's trade ministry and now
head of the China Business centre at
PricewaterhouseCoopers in London. "Chinese banks'
insolvency is an open secret. Although they are
backed by state guarantees, their position is having
a serious effect on the economy."

Standard & Poor's says 45 percent of loans at China's
four state banks, which account for more than 80
percent of commercial lending, are non-performing.

Pumping in $65 billion will wipe out 25 percent of the
country's foreign exchange reserves in six months.
The government is trying to cool its economy, which
last year grew at more than 9 percent. Bad loans
chiefly affect the property and construction sectors
and were authorised by government officials.

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