A most obvious symptom of China’s ailing manufacturing sector can be gleaned from studying its banks’ balance sheets.
China’s Big Four state banks provided much of the financing during the country’s manufacturing growth over the last two decades. But as China’s manufacturing and export sectors contract, so does its ability to service existing loans.
Last year China slogged through its worst economic growth in more than two decades, and as a result, bad loans piled up. The buildup of such nonperforming loans—loans that are in danger of defaulting and for which the interest is past due—increasingly weighs on its bank balance sheets.
Soaring Nonperforming Loans
Bank of China, Industrial & Commercial Bank of China (ICBC), Agriculture Bank of China (AgBank), and China Construction Bank (CCB) combined wrote off or spun off almost 130 billion yuan ($20.8 billion) of soured loans last year, more than double the total from the previous year.
CCB was last of the Big Four banks to announce earnings on March 27. CCB said it wrote off almost 36 billion yuan ($5.8 billion) in bad loans last year, more than double the amount it wrote off in 2013.
AgBank experienced the greatest uptick in year-over-year writeoffs among its peers, with its bad debt increasing threefold. And that doesn’t include the 26 billion yuan of soured loans it sold off to “asset management companies,” set up specifically by the Chinese Communist Party to buy up toxic assets and keep the banks’ balance sheets clean. AgBank got around 37 cents on every dollar of loan sold.
