August 30, 2006

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Money money money

Thanks to Gordon for the pointer to a Newsweek article looking at China's massive foreign exchange reserves, saying it is possible to have too much of a good thing. Amongst the interesting observations, including a comparison with Singapore, comes this:

The roots of this contradiction go back to the early 1980s and the start of reform in China, when the late patriarch Deng Xiaoping opened the manufacturing sector, but not the banks, to foreign investors. The good news was that the closed system inoculated China against the rush of global capital that toppled banks across Asia in the crisis of 1997-98. The bad news: banks had no competitive incentive to learn proper risk management, or to introduce modern retail banking or consumer lending. Now the system is such a mess that China fears to open it. And it sits on a huge pile of idle dollars that its own banks are unable to employ fully at home.
Just a friendly reminder to those who are holding shares in China's banks.

posted by Simon on 08.30.06 at 02:07 PM in the China economy category.


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i concur. knowing what we know about the massive fraud and corruption along with the incompetence of the government and senior management at chinese banks, i'm bewildered at the public rush towards buying chinese bank stocks!

posted by: dezza on 08.31.06 at 10:43 AM [permalink]

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