The chairman of China Construction Bank (939 HK), Guo Shuqing, has serious concerns about China’s financial system.
He’s concerned about inflation, a risk which has been discussed substantially on this site before. The latest 31% year over year jump in M1 money is worrisome, for example.
Yet what struck us was his description of the risks created by China’s small banks during just the last year:
Mr Guo warned that the continuing splurge in lending also raises the risk of a sharp rise in non-performing loans among smaller Chinese banks that have funded local government infrastructure projects, often of dubious viability.
“I think that small banks last year newly issued loans grew even fast, some even doubled their liability and assets,” Mr Guo said.
“At the moment the banks seem healthy but I think that small banks, because we don’t know the structure of their assets, maybe have got more risk exposures because they are growing too fast and their risk management is not as good as big banks.
“And secondly because they are very small and their loans are going to a more concentrated number of customers, that also could definitely cause a problem.”