Ernst & Young Eats Crow....

The E&Y report released last week that argued that China's NPLs would top US$900 billion was ceremoniously withdrawn with a terse and lacking in substance statement [Found via Simon World].

Unfortunately, I cannot locate any copies of the original report "Global Non-performing Loan Report 2006" that I understand included China as a review and estimates of global non-performing loans. Here is the retraction.

Knowing what I do of the Chinese banking industry, it does not surprise me that the auditor of 2 of the largest 4 banks in China estimates that NPLs are either much higher than officially stated or expect them to rise dramatically over the near-term. Basically, Chinese banks haven't a clue how to make loans and they do very little follow-up after they are made. So, how many loans are being classified as performing when in fact they are just a roll-over of a customer that will ultimately be unable to pay? We cannot rely upon the party accomplices that run these organizations to give us an honest answer, the Central Bank doesn't want to tell the truth before selling another stake to unwitting foreign investors and the Chinese themselves do not want to hear that their hard earned savings as deposits in the institutions could potentially be at risk!

And of course, China, rather than dealing directly with the problem, have been dragging their feet with fake reforms and half-assed procedural changes. That is because the banks are still a an arm of the State with senior managers being appointed not by ability but by affiliation with CCP leaders. All of this in the context of a booming economy. What will happen there when the economy slows down marginally? That is when we WILL see $900 billion in NPLs. I trust E&Y's original report not their brown-nosing ass kissing withdrawal.