Chinese infrastuture bubble about to burst? Bad loans mount to $220bn: Report

China’s bad loans totalled a whopping USD 220 billion last year with the provincial governments causing most of them due to their penchant for infrastructure overdrive, a banking report said on Saturday.

About 90 per cent of 1,794 bankers surveyed regarded risk management from bad loan pressure as the biggest challenge last year, state-run Xinhua news agency quoted a report by the China Banking Association and PwC as saying.

Bad loans by commercial banks totalled 1.5 trillion yuan (USD 220 billion) at the end of last year, 18.3 billion yuan more at the end of quarter three (Q3).

Accordingly, about 78 per cent of the bankers put improving risk management as key task, with about 61 per cent choosing to adjust business pattern, the report said.

The biggest borrower is urban infrastructure projects, followed by the medical sector, it said.

Most of the bad loans were reported to have been caused by provincial governments who in the past went for infrastructure overdrive to showcase their progress while sitting on bad loans.

Chinese banks also conduct off-balance-sheet businesses such as asset management and investment banking. High net worth individuals, small businesses and government departments are the top three client groups, the report said.

Last year, a top official of the International Monetary Fund (IMF) asked China to take immediate steps to tackle rising corporate debt to avoid new “debt bubble”.

“Corporate debt remains a serious and growing problem that must be addressed immediately and with a commitment to serious reforms,” IMF’s first deputy managing director David Lipton had said at a conference in Shenzhen in June last year.

He had estimated the total debt at 225 per cent of GDP and corporate debt at 145 per cent of GDP, “which is very high by any measure”. China’s corporate debt was a serious and growing problem, Lipton had said.