PureInsight | June 3, 2002
(5) The Crisis of the Financial System
According to the latest report in the Zao Bao newspaper in Singapore, the manager of the Bank of China, Dai Xianglong, said that, at the end of last year, the bad debts of the biggest four state-sole-ownership commercial banks of China had reached 25 percent or approximately, 1.8 trillion Yuan RMB. Additionally, several of these types of businesses have lost basic eligibility to apply for loans since their liabilities exceed 75 percent of liabilities plus equities, according to the financial statements of state-owned industrial enterprises.
At present, the main source of money in a state-owned bank comes from domestic deposits and treasury bills. With bad debts running so high, and losing money like this, such a bank would have gone bankrupt several times if it were operating in another country. However, in the current system, where the government has its controlling hand in the management of everything, this type of bank survives, temporarily, by borrowing (creating new debts to pay old debts), by getting “blood transfusions” from foreign capital, and by printing bills. However, as soon as the situation becomes unsteady and people begin to withdraw cash, the bank immediately crashes because it does not have the money reserves.
The internal environment in which an enterprise operates shows that constructive finance has become a feeding finance. Policies that initiate inequitable competition hurt state-owned enterprises [by] making them big burdens on economic development, and, in turn, these burdens make trouble for the state-owned banks. Since privatizing property rights, new enterprise owners have not built stable long-term relationships, while facing huge temptations. After entering the WTO, foreign goods will comprehensively impact the national goods market, and this development will mean one misfortune after another for the Chinese enterprises. If, by then, foreign banks also join the competition for the capital market and take up a portion of this market, the future for state-owned banking, indeed, does not look promising!
(6) State-owned Property Seriously Drained
Recent statistics published by various official departments tell a story of corrupt behavior and economic losses in different sectors of China. Hu Angang, an economist in China, has summarized the financial losses into ten kinds of systematic economic losses due to corruption. In other words, people in power are striving to benefit themselves or their circles, using their positions of public trust. This has led to huge economic losses for the country due to embezzlement, bribes, peculation, smuggling, tax losses, corruption in public organizations and public expenditures, corruption in monopolized industries, and corruption of the public institutions, including collecting fees, corruption in privatizing state-owned enterprises and in banking, and so on. According to rough statistics, in 1999-2001 alone, the average loss accounted for as much as 14.5-14.9% of the gross national product. It was exactly by methods like these that the borrowers have made massive state-owned properties and income fall into individuals’ purses. How did they succeed in doing this?
To give an example of typical corruption, the ST Monkey King Group was sent to court in 2001 because of forged accounts. Yi Chang Audit Bureau had audited them for 176 days before they declared bankruptcy. Startlingly, after the 176-day audit, a property of 2.5 billion Yuan “evaporated” from their accounts! The total property of 3.4 billion Yuan before the audit dropped down to 0.9 billion Yuan after the audit. An audit had “eaten” a property of 2.5 billion Yuan! Also, the total loss of 0.3 billion Yuan suddenly increased to 3.5 billion Yuan!
So, where had all the money gone? One of the main creditors, the Huarong Property Management Company, suspects that the Monkey King Group had transferred the main assets to somewhere else, long before they declared bankruptcy. They left massive debts for the country and shareholders. Later on, Cheng Xiaolin, the executive director, vice-general manager and chief accountant of the ST Monkey King Group, became a suspect for embezzling 300,000 Yuan of government money, and was awaiting bail and trial. Think about it! A 2.5 billion Yuan property enterprise has been inexplicably drained. How could the corruption possibly be only 300,000 Yuan? Then, how much can possibly be verified and recovered? The people’s laboriously hard-earned money, accrued over decades, just vanished into thin air.
From this single example of terrible greed, we can see how these enterprise insects ate the state-owned assets. No wonder an article in Open magazine in the late 1990’s disclosed that Mainland China had become the fourth largest capital flight country in the world. Beijing University has published a research report pointing out that China’s capital flight was 36.4 billion US dollars in 1997, 38.6 billion USD in 1998, and 23.8 billion USD in 1999, according to the research done by concerned scholars. As for 2000, Fan Gang, another economist, puts the amount at 48 billion USD. This capital flight alone averages more than 0.1 billion US dollars a day, and only the high-ranking officials have the ability to move capital out of the country on such a large scale. And these figures do not even include domestic corruption.
In order to shift cash obtained from embezzlement and corruption, corrupt officials usually buy houses in foreign countries to prepare themselves an escape route for the future. As soon as there is the slightest sign of trouble, they grab their passports and slip away. People do not realize that amidst their luxury buildings, one next to another, and their foreign properties, how much of that capital comes from the tiny bit of property the country has accumulated over decades. How much comes from the laborious hard-earned money of common folks! How much comes from the pensions of retired staff, and how much of it is the life supporting money of laid-off workers! Seeing this, how can one’s heart not ache?
(To be continued…)
Translated from:
http://www.zhengjian.org/zj/articles/2002/4/13/15364.html
