The Sky Is Falling on Chinese Corporations

The four largest banks in China, the banks that have to officially show big profits and profit growth no matter what because they’re an integral part not only of the government but also of China’s miraculous debt-driven expansion, are showing officially tolerated signs of increasing stress. For perspective, in 2009, following the Lehman moment, as other banks were collapsing and were bailed out, the profits of these four banks grew even then, if only by a combined 2.9%.
These four mastodons – Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China – admitted to 384.7 billion yuan ($62.6 billion) of bad loans on their book at the end of June, a 13.2% jump from just six months earlier. The jump in bad loans ranged from 11% at Agricultural Bank of China to 17% at Bank of China.
If we suspend our disbelief in Chinese numbers, bank numbers in general, and Chinese bank numbers in particular, for a very brief moment and accept them temporarily as if these bad-loan numbers were actually something close to reality, rather than something ludicrously beautified, they would amount to about 1% of total lending by these banks. And it’s gnawing at their profits: their relentless state-mandated rise slowed to 9.6% over prior year.

This post was published at Wolf Street by Wolf Richter ‘ September 2, 2014.