The Rise and Fall of Abacus Banking in Japan and China phần 10 docx

Exhibit 7.6

Bank Net Loans in China (1980–1997) (percent of total assets)

Exhibit 7.7

Bank Net Loans in the United States (1980–1995) (percent of total assets)

156 The Rise and Fall of Abacus Banking in Japan and China

and terms they offer for lending and have provided a range of services not

offered by banks. They also had access to funding other than conventional de￾posits and have provided stimulating competition to traditional financial insti￾tutions.19

ITICS amassed huge amounts of funds both in the domestic and in foreign mar￾kets for the purpose of financing provincial and local projects such as housing

and commercial real estate projects. ITICs played an important role. They pro￾vided funds to China’s less reputable companies that wouldn’t have access to

domestic equity markets and foreign banks.20

Owned and controlled by provincial and local governments, which are

often at odds with Beijing over the direction of economic policy, ITICs

escaped from regulation and central government control, turning into

some kind of discretionary, hidden reserves of local governments.

‘‘These TICs were born as a kind of hidden reserve for provincial gov￾ernments. They were forced by local governments to make investments

in local projects or give loans to local enterprises. They lacked self￾discipline and monitoring by the central bank.’’21 In this sense,

Their role in China’s financial system has been characterized by a series of cy￾clical swings, with expansion and diversification being encouraged during cycli￾cal upturns, only to have their numbers, growth and scope of activity tightened

during more strained economic periods.22

SITICO, TITIC, and ZITIC are three cases in point. SITICO, for in￾stance, is 85 percent owned by the Shanghai municipality and functions

as a development bank in the Shanghai region, engaged in the financing

of the local automotive company, hotels, real estate, and land develop￾ment. TITIC is owned by the Tianjin municipal government and also

functions as a local development bank, financing technology companies

and real estate projects, and even trading unlisted stocks. ZITIC is owned

by the Zhejiang provincial government and is engaged in the leasing,

real estate, and hotel business.

Escaping the close scrutiny of government regulators, as has been the

case in other Asian countries, most notably with their counterparts jusen

in Japan, ITICs have turned into speculative vehicles, financing bubble￾prone sectors such as the construction sector (see Exhibit 7.8). In fact, the

signs of over-construction are evident across China’s major cities, where

many buildings are unfinished and abandoned, especially in Shanghai,

where over 50 percent of buildings are vacant.23 According to Lardy,