Professor Thomas A Pugel explains China’s forthcoming crisis, advisinIn almost any current discussion with government officials and executives of export-oriented companies in almost any country (except the US), the “China locomotive” phenomenon – the positive effects of the expanding Chinese economy – comes up. China’s growth probably will slow somewhat in the next year or two. But that will be nothing compared with the crisis likely to hit in the next decade.g policymakers to focus on the next decade.
Bank of China (BoC), the largest of China’s big four state-owned banks, has announced that its non-performing loans ratio will be down to around 5% by the end of 2004 as it plans to bring in a strategic investor later this year in preparation for its IPO. This significant reform of the bank’s ownership structure reflects the Chinese authorities’ determination to reform the big four banks which account for 55% of China’s bank assets.
China is set to use medicine strong enough to cool down its investment fever, but not so potent as to bring the economy to a standstill. Banks are at the forefront of this austerity campaign, acting on the orders of the central government to choke off credit supply to overheated sectors.
Louise do Rosario says the pace of change has speeded up dramatically since China signed up for WTO status. For many years, foreign banks in China grew at a snail’s pace, while the local economy was growing an impressive 8%-9% a year. Foreign banks made a negligible impact on the local banking scene, as they were confined by law to a few cities and to serve mainly foreigners.This situation has changed, thanks to the financial liberalisation China has made in accordance with its commitments to the World Trade Organization (WTO).
In an increasingly interconnected world, large financial services institutions (FSIs) are already sourcing their IT and business process services from a variety of international locations. As outsourcing services have evolved from filling tactical gaps to providing strategic cost and quality advantages as well as innovative features, FSIs are tapping supplementary alternatives to India as a location for offshore outsourcing.
The big issue in China is not inward investment but outward investment. Even as the queue for QFII (Qualified Foreign Institutional Investors) status lengthens (allowing access to China’s renminbi denominated A shares market, the bulk of stock market capitalisation), the talk is of when China’s own insurance and social security funds may be allowed to venture overseas freely and openly.