The financial statements from China's state-owned banks failed to reflect their risk control capabilities and the system controlling how they are ruled will make their bad loan problems unsolvable, argued Xu Xiaonian, a professor with CEIBS, China's top business school.
"The bank's potential risks and disguised poor efficiency will be clearer in three to five years," Xu said, citing widespread nonperforming loans following each economic cycle's climax in the country.
"In 2009 and 2010 when the central government introduced the ¥4 trillion stimulus package, there were lower limits rather than upper limits for banks to lend money," Xu noted. "Failure to meet the lower limits would result in fewer perks so we can figure out the risks involved."
Xu suggested finding out who lent to the Ministry of Railways, the operators of loss-making airports, highways and unfinished infrastructure projects, and finding the banks that funneled a combined ¥10 trillion to local governments.
The bad loans at state-owned lenders were caused by China's macro system and therefore this problem is very difficult to overcome, according to Xu. Such government-dependent banks obediently acted like instruments to comply with policies, disregarding whether the policies made sense or not.
Tricky issues are awaiting the nation's next leaders who are expected to take over later this year, Xu added.