China's Debt_ Chinese banks' accounting methods hide substantial risks

THE HILL

Chinese banks' accounting methods hide substantial risks

By Arthur Dong, contributor - 12/12/16 10:20 AM EST


A recent article published in the Wall Street Journal highlights an emergent debt crisis within China’s banking system that some have described as a ticking time bomb. Clear-eyed observers have been sounding the alarm for years that the level of debt within China’s financial system has been rising at alarming rates.

To date, China’s debt-to-GDP ratio hovers around 250% of GDP. To put this into perspective, the financial crisis that plunged Japan into its “lost decade” was sparked when its debt-to-GDP ratio hit 180%. China is in a league of its own regarding this key economic measure.

ADVERTISEMENT Observers who have been critical of China’s rapidly escalating debt have wondered how China’s banking system has managed to avoid the prospects of insolvency given the tremendous buildup of debt within the system. How is it that we’ve not witnessed the collapse of one or more Chinese banks?

The Wall Street Journal substantiates what many have suspected all along; Chinese banks are using accounting sleight of hand. They have been reclassifying what are, essentially, loans into another balance sheet line item described as an “investment receivable.”


READ MORE: https://origin-nyi.thehill.com/blogs/pundits-blog/international/309934-chinese-banks-accounting-practices-hide-significant

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