As a result, the nonperforming loans owned by the asset management companies are nearly worthless.
Two consortia led by Morgan Stanley and Goldman Sachs are now in the final stages of buying some of the least dubious loans with a face value of US$1.4 billion. But the investment banks will make an initial payment of just US$0.08 on the dollar, with further payments up to a total of US$0.20 on the dollar if they find themselves able to collect an unexpectedly high fraction of the loans' value.
Sustainable growth?
To be sure, China's economy is growing by 8 percent a year, the fastest pace of any of the world's big economies. But even Chinese government officials are warning that the growth may not be sustainable, and that the expansion may slow soon.
Moreover, much of China's growth has come from the roughly US$350 billion in foreign investment that has poured into the country over the last decade, which has, by and large, been efficiently invested.
By contrast, China's banking system has bad debts that are larger -- in comparison to the size of the economy -- than those of Japan, which has suffered for more than a decade from the overhang of bad debts from its speculative frenzy of the 1980s.
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