And We Think We Have a Debt Problem?

I've spoken about this before, by 2010, China will endure a financial crisis that could ripple through the world.

From Newsmax:
$900B in Bad Chinese Loans: Crisis?

Beijing has a debt problem. There doesn't seem to be any easy way out, and it could lead to a national bank crisis in China. That's the consensus based on a May 2006 study from Ernst & Young that shows that bad, or non-performing, loans (NPLs) in China have hit critical mass.

According to the firm, China is now saddled with roughly $900 billion in bad loans, representing about 40% of that nation's overall gross domestic product. About $360 billion of those loans are on the books of four of China's largest banks, as well.

The latest figures on China's total liabilities compares with the firm's 2002 NPL estimates, which were calculated at $480 billion, says Ernst & Young. The news comes as a surprise to China watchers, many of whom have been unabashedly bullish on the region - and who may have been overlooking some warning signs that all is not well within the world's second-largest economy.

"Estimates of the growing pile of non-performing loans (NPLs) in China appear to have caught many by surprise, especially because Beijing's efforts to clean up its rickety state-owned banks were thought to have greatly reduced NPLs and the risk of a full-blown financial crisis," according to a recent article in The Australian.

The paper also points out that the Asian nation has been down this road before.

"China has already spent the equivalent of 25-30% of GDP in previous bank bail-outs," the paper says.The Financial Times says that the bank loan shortfall will be of particular interest to foreign investors, many of whom have poured billions into the Chinese banking market. Three of those banks - China Construction Bank, the Bank of China and the Industrial and Commercial Bank of China - are bearing the most scrutiny.

Some of the NPL growth is simply the result of growing pains, The Times says. "The higher estimate results from better access to information, a tide of potential new NPLs arising from China's rapid loan growth and the realization that the problem was not confined to large banks and the distressed debt companies attached to them."The NPL problem seems, for now at least, limited to China.

The Times points out that China's debt woes are "at odds with the survey's broader finding that the global NPL position had improved.""With the exception of China, every market covered [by Ernst & Young] in the 2004 report has witnessed a reduction in its level of NPLs written before 1997," the report says. "China's banks are at a crossroads in addressing their NPL problems.

"The report also notes that the problems in China's NPL market have been turning off foreign investors."Auctions that attracted 20 or more investors a few years ago now drew in only about five to 10."