China’s Potemkin banks

Markets are abuzz with the news about Bank of China’s debut on Shanghai markets. China’s second largest lender went live there Wednesday and its stock promptly jumped 23 percent. Analysts believe investor enthusiasm stems from good news on profits and concerted efforts to reduce bad debt. But it’s important to recall that the non-performing loans BoC and other Chinese banks generated are still around. Much of the bad debt was simply sloughed off to so-called asset management corporations (AMCs) in an effort to make Chinese banks presentable on international markets. The AMCs are now desperately—and often sloppily—trying to dispose of the debt. As China’s banks go public, it will be important to keep a close eye on the red ink behind the facade.