25 August, 2006

China’s Rural Banking Crisis

AsiaPundit has been known to criticize the reform of China’s banking sector. For instance, many of the bad assets held by state banks have been shifted to state-held asset management companies (AMCs) and still remain liabilities for the central government. Still, even in our criticism, we have been guilty of paying too much attention to the major state lenders and AMCs.

Occasionally, we are reminded that problems are even worse for the rural banking sector.:

Cn2003Goat FansBEIJING: A village cashier in west China lost 12,500 US dollars of public money after it was eaten by goats.
The incident occurred last May, when the village cashier surnamed Zhang and his wife in Linjiawan village in West China’s Shaanxi province were stunned by the scene when they saw their ten goats chewing the money, the state media reported on Wednesday.
The couple immediately slaughtered the goats and put together the cash debris taken out from the animal’s stomach, saving 297 pieces of notes worth 12.5 US dollars each, reported the Xi’an Daily on Tuesday.
“We are considering exchanging more damaged cash for Zhang and will treat it as a special case after reporting the incident to superiors, in view of reducing farmers’ economic burden,” director of the currency issuance section of the apex bank, People’s Bank of China, Hengshan County branch, Li Shengyang said.

Imagethief comments:

Question: What was a “village cashier” doing hiding money by burying it in a goat pen? Does this strike anyone else as suspicious behavior? If I was thiking about secure places to store public money I don’t think “goat pen” would be the location that leaps to mind. I might consider “banks”, or “enormous steel safe” or even “locked trunk guarded by my shotgun-toting henchman, ah qiang and a brace of rottweilers”. But probably not “goat pen”.

Per “banks” as an option, that seems particularly useful to me. If Hengshan county has a branch of the People’s Bank of China, they probably have retail baking too. Could banks in Shaanxi be so hopelessly corrupt that they can’t even be trusted with deposits? If so, China’s banking system has further to go than I thought.

While this an incident of concern, we do note with relief that the PBoC does seem to have some deposit insurance in place. This should help prevent a full-blown systemic crisis should any individual animal pen be declared insolvent.

(Above image of 2003 goat coins stolen from here.)

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by @ 4:56 pm. Filed under China, Money, Asia, East Asia, Economy, Northeast Asia

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