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China insists bad debt is under control

China's banking regulators have dismissed claims that the banking sector is heading toward another non-performing loan (NPL) problem and supervision of bank lending has paid off, according to a report.

Jiang Dingzhi, a deputy-chairman of the China Banking Regulatory Commission, was quoted as saying by the Financial Times that, we have required the banks to change their attitude from pursuing asset growth and excessive expansion, and asked them to operate under capital constraints. We are happy to see that the NPL ratio on new loans has been controlled and kept down to 1-2% since 2003.

The true size of China’s bad debt is in dispute. Several investment banks and consultancies have published reports estimating the impact bad loans are having on the system, but findings are varied.

A recent Ernst & Young report said that China’s liabilities for non-performing loans may be more than $900 billion, although the findings were strongly criticized by The People’s Bank of China and the report was subsequently withdrawn.