First sign of coming Chinese Financial Crisis – resignation and possible house arrest of Zhang Enzhao, chairman of China Construction Bank
Babu Ghanta
Mar. 17, 2005

While the whole world is focused on oil price, behind a major financial crisis is becoming more transparent that can bring depression in Asia if not the whole world.

On March 15th, Zhang Enzhao, chairman of China Construction Bank (CCB) -- one of China's "Big Four" financial institutions -- resigned, citing personal reasons.

According to sources close to Chinese Financial Authorities, Zhang was actually removed from his position and is under house arrest while a major corruption investigation goes on. What really happened in CCB is typical in Asia especially China.

The way loan is provided to private industry is China is less than a transparent process. Like in India, the executives of Government controlled Banks receive bribes, favor of all kinds and in exchange they provide loans without much regard to the loan worthiness of the debtor. Very little is done what is known in the western world as loan underwriting. The Banks are considered more as a source of capital than loan processor. Nationalized banks are regarded as a Government give outs to businesses. It does not matter if the business is profitable or not.

The corruption level in China is so high that the Government is really concerned. India is not far behind. The loan officers and executives of Indian Banks receive bribes regularly. But induction of private Banks in India especially the foreign banks has made these nationalized banks change. The Government in India threatens the banks that they will be privatized unless they are efficient. That has lowered the corruption level.

The Banking in China is completely controlled under the gun of the Government. That is the source of solid corruption and the Chinese Financial system can plunge as soon as Chinese currency is made flexible and floats in the open market.

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