The shadow banking problem in China

With all the massive growth in China, there are serious problems below the surface. The basic problem is that the huge national and local governments are corrupt and cronyism rules. This has led to huge real estate loans that make little sense.

Meanwhile, small businesses who legitimately need capital have to resort to a shadow banking system, and that poses a whole new set a problems. The Chinese government is trying to address the issue.

Risks stemming from China’s shadow banking system and private lending must be “strictly controlled,” and such loans will be curbed, the head of the nation’s banking regulator said.

Loans to local government financing vehicles and the real- estate industry, which also pose dangers for the banking system, can be managed, Liu Mingkang, chairman of the China Banking Regulatory Commission, said at a conference.

The government and regulators have already implemented “effective measures” that will ensure the overall risks are “controllable,” Liu said, according to a transcript of his speech posted on the regulator’s website yesterday.

Premier Wen Jiabao last week pledged to support smaller companies after media reports highlighted a credit squeeze that has driven many businesses to the so-called shadow banking system to obtain loans. More than 80 businessmen in the eastern city of Wenzhou have disappeared, committed suicide or declared bankruptcy to avoid repaying debts to informal lenders, the official Xinhua News Agency reported on Oct. 12.

The story in China is much more complicated than you would learn from conventional wisdom and simple headlines.

U.S. should increase Chinese tourism

Tom Friedman writes often about China, and his latest column addresses current hot issues like currency valuation, manufacturing and trade. But this paragraph grabbed my attention:

But we also need to stop thinking that a middle class can be sustained only by factory jobs. Thirty years ago, Hong Kong was a manufacturing center. Now its economy is 97 percent services. It has adjusted so well that this year the Hong Kong government is giving a bonus of $775 to each of its residents. One reason is that Hong Kong has transformed itself into a huge tourist center that last year received 36 million visitors — 23 million from China. Their hotel stays, dining and jewelry purchases are driving prosperity here. The U.S. Commerce Department says 801,000 Mainland Chinese visited the U.S. last year, adding $5 billion to the U.S. economy. More Chinese want to come, but, for security reasons, visas are hard to obtain. If we let in as many Chinese tourists as Hong Kong, it would inject more than $115 billion into what is a highly unionized U.S. hotel, restaurant, gaming and tourism industry.

The United States needs to get beyond some of the over-zealous security restrictions imposed after 9/11 and let as many Chinese and other tourists come visit as possible. Tourism has helped to sustain Europe for years, and the U.S. needs to take advantage of this as well.

Beautiful Bai Ling attends Huffington Post 100 Gamechangers event

Actress Bai Ling arriving at the Huffington Post 100 Gamechangers event on October 18 2011 in New York City. Ling is a Chinese actress who you’ve seen in films such as The Crow. She also had a cool role in Entourage.

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