I’ve just gotten around to reading the prospectus for China’s Bank of Communications, which listed on the Hongkong Stock Exchange last summer. This bit made me chuckle:

This information may not be consistent with other information compiled within or outside the PRC. In particular (but without limitation), a number of overseas market observers have estimated that the level of the non-performing loans in the PRC banking system may be considerably higher than the figures cited herein, and if such estimates are true, the level of the PRC banking system’s assets and some of the other related figures included in this section may be overstated.

Recently in the FT

China’s total liabilities for non-performing loans may be as high as $900bn, dwarfing official estimates and outstripping the country’s massive foreign exchange reserves, according to a study of Beijing’s bad debt problem.

The study, part of Ernst & Young’s annual global survey of NPLs, says China’s big four state banks alone have bad loans worth $358bn, or more than twice official estimates.

Aside from the large banks, the new estimate includes bad loans in state investment companies, credit co-operatives – many of them in rural areas – and other vehicles set by the government to dispose of bad loans [emphasis mine].

Well, if you include all the bad loans that have been shifted to the asset management companies (about $330 billion at YO 2005 right there) from the commercial banks then of course you’ll get a huge number.

Ernst & Young’s “Global Nonperforming Loan Report 2006”

Looking at the daily stock price charts for Bank of Communications and China Construction Bank, I’d say the Chinese banking system must be hunky-dorry.