Matthews Asia: Beginning Of The End – To China Bank Woes

The rise and development of China's financial system has been different from most other emerging economies. One unique aspect has been the rapid accumulation of bank deposits over the last 10 years. Another more controversial aspect has been the corresponding on-lending of these deposits to a wide variety of borrowers—some less creditworthy than others. Some people suggest that the increase in bank loans has been excessive.

Why have bank loans risen so quickly? After the Global Financial Crisis, Chinese banks were asked to take on what was largely state lending that should have been done by the government directly. These loans have been sitting on bank balance sheets ever since. In 2015, the government recognized the need to take many of...