Southern Perspective Shenzhen

China has made great strides in opening up their economy and loosening the restrictions they have in place. However, the Chinese gov’t has not given away all of the power they once had.

Next on the list are leftovers from China’s years of a central planning style of government.

At that point in time, China’s economy had no corporate growth strategy or marketing, they simply produced what they were directed to produce for the Chinese domestic market.

Because these industries employed some many people, they were essential sectors of the economy and were given VIP cards and and first in line for loans from China’s big four state owned banks.

This is eerily similar to the current situation the US gov’t finds itself in, GM and AIG have basically become American state owned enterprises, they are too big and employ too many people to be allowed to fail.

The main source of China’s 4 large asset management company’s assets are hundreds of millions of dollar in non performing loans to state owned entreprises.

This is very similar to the “Toxic Bank” idea that was tossed around in the US as a way to let banks clear bad loans from their balance sheets and help them recover from making so many loans based on dollar signs and fuzzy logic.

As China moved towards a market economy in the early 1980’s these blank checks to the massive state owned companies started to dry up.

The government realized that they could not afford to continue to loan these company’s massive amounts of money and expect nothing in return but stable employment.

This credit plan was officially abandoned in 1998, although state owned companies are still propped up with massive loans. 

This is still a major issue for Chinese small and medium sized businesses,  they often have much more efficient business operations but, more often than not, are unable to get business development loans the results of  large corporations feeding on loan money like great white sharks on seals.

The development of China’s middle class, and a strong stable internal consumer market, will depend on their abaility to encourage  small and medium companies to develop.