When asked to describe his business model, the manager of a large private bank in Guangzhou replied last week: “Opportunistic”.
And that’s the problem. Originally, China’s private banks filled the shortfall left by state banks, lending to the country’s dynamic, but cash-hungry SMEs. Operating more like an investment club, they lent locally and understood their risks.
But what started out as a good idea has since been warped by China’s long standing problem of excess liquidity. The private banks are now contributing to a bubble that is starting to look like that in the West during the past decade.
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