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Matthews Asian Funds puts together a quarterly newletter. In the most recent issue they talk about Asian banks.

Banking on Asia

While capital has not necessarily been in short supply in Asia, what supply does exist has often been allocated inefficiently by banks. In China, where four large state-owned banks control about two-thirds of all banking assets, banks have traditionally been a government instrument for financing large state-owned enterprises (SOEs.) Companies with the potential to drive growth—entrepreneurial start-ups and mid-size businesses—have been denied access to credit.
Historically, the number of bad loans or “non-performing assets” in Asia, as a percentage of total assets, would often be unacceptable in a U.S. or British bank. Yet bank failures or closings have been rare. The fragile underpinning of the system is an implicit government “guarantee” of bank solvency.
Ironically, Asian countries enjoy substantial trade surpluses with the rest of the world, but the proceeds are not reinvested in Asia's economies. Instead, the proceeds are kept offshore, invested largely in U.S. treasury instruments or government-backed agency bonds. The central banks of South Korea, Japan, Taiwan and China hold a staggering $2.3 trillion in foreign exchange reserves.

In theory, that large pool of capital could be re-circulated within Asia to promote continued economic development. Yet because the region's bond and stock markets are relatively underdeveloped, banks by default would play the lead role in channeling that capital into the region's respective economies. This is a risk that Asian governments appear unwilling to take. They would apparently prefer to earn a low but stable rate of return on those assets, rather than place those funds at risk in their own shaky banking systems. Far from being agents of growth, Asia's banks have largely been a bottleneck to it. The U.S. serves, in effect, as Asia's “offshore financial center.”

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