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China Daily

Avoid risks properly

Chinese banks are showing a tendency to shun away from the private sector in an overreaction to the recent fall of several Shanghai tycoons, commented an article in the China Business Times, an excerpt from which follows.

The recent investigation into some Shanghai barons'  "problem loans" has scared many domestic banks, prompting some to tighten their purse strings to private enterprises.

Through such moves, they hope to slash their credit risks and reduce the odds of problem loans occurring.

However, there is no firm ground backing up such logic.

Undeniably, private enterprises are not cautious enough about the evaluation of their credit risks. Some of them do indulge in getting loans from banks through improper or illegal means. Naturally, such acts incur risks for banks.

However, obtaining loans through improper deals is not necessarily the sole preserve of private enterprises, and the banks' potential credit risks have more to do with the weakness of their own risk-control systems than with which type of firms they do business.

Digging deep into problem loans will reveal that most of those loans were the result of bribes-for-loan transactions between borrowers and bank officials. This indicates that the internal credit risk management mechanism of domestic banks is very much to blame as the origin of problem loans, and it is an imperative task to improve their governance structure.

In fact, domestic financial institutions' long-held phobia towards the private sector has made them hesitant to grant loans to private firms for long, forcing many of these firms turn to underground banks for financing or use illegal means to get loans.

The impact of the banks' latest wave of shying away from the non-State sector, which has mainly taken place in Shanghai and other major cities, remains to be seen.

However, if banks resort to such an irrational business approach towards private firms at a time when many of these firms have already been dealt a crushing blow by the SARS outbreak, this would seriously undermine their vitality and hence drag out the economic recovery.

End double standards

A new international debt-settlement mechanism is urgently needed, said an article in the Economic Daily, an excerpt from which follows.

As the Iraq War comes to an end, the problem of Iraq's foreign debt has once again come under the spotlight of the international community.

The United States has called for Russia and France to write off Iraq's debt to them, reasoning that Saddam Hussein's regime was a corrupt government.

The latest US move reminds us of Washington's own dealings with Indonesia in the 1990s.

When Indonesia's former Suharto government, which was considered a corrupt administration by the United States, was forced to step down, the United States did not recommend that Indonesia's new government not to pay its foreign debts. Instead, it exerted great pressure on the new government to pay back all its US debts.

It is clear that the United States is using double standards in dealing with international debt disputes.

According to such standards, the debt must be repaid only if it is owed to the Untied States. Otherwise, it should be forgiven.

As the world becomes increasingly globalized, it is also more imperative to formulate a set of just and fair international rules to tackle problems that crop up in such a process as the international debt issue.

Currently, developed countries play the dual role of regulator and arbitrator in the international economic arena at the expense of developing countries' interests.
This is also the case with the current international debt-settlement mechanism.
While poor debtor countries are also members of the International Monetary Fund, that organization is dominated by rich creditors.

It is important to have both the borrower and creditor jointly write the rules for debt settlement.


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