Bank shortcomings exposed as Chinese economy founders

Elliot Wilson
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The Chinese economy is growing ever more slowly – probably slipping even faster than officially admitted, and from a base whose size is possibly exaggerated too. In the midst of this, the orthodox banking sector is doing unorthodox things on a grand scale, while being undermined and bypassed by an even more unorthodox grey financial sector.

China’s economy is slowing. Profits at leading state-owned enterprises (SOEs) are stagnating. The mainland’s plodding, unsophisticated banks face an uncertain, troubled future. Many observers, including regulators and leading Communist Party officials, deem grey-market shadow finance to be out of control. How worried should we be?

The first issue first, as it informs so much of what happens across the People’s Republic. Generating hard topline facts on China’s economy has never been easy. Data provided by the official National Bureau of Statistics are trusted by almost nobody.

The agency once issued a GDP figure before the fiscal year was even complete. In the mid-2000s, in an attempt to make the Party appear to be in charge of a serenely growing economy, it understated GDP; now it probably embellishes it. Even premier Li Keqiang says he uses the NBS "for reference purposes only" –...