Chinese banks are facing serious default risks on around $230 billion in loans lent to local government and sub-contracted projects across the country, according to senior Chinese officials.

In another horse-bolted-then-door-bolted scenario reminiscent of bankers throughout the Universe of which they are the Masters, the key Chinabanks have been ordered to increase collateral and credit-scoring dramatically. Before economic liberalisation in fact, often over half of all Chinese loans went bad. It then went as low as 1% before zooming up last year during the Beijing regime’s mega-stimulus programme. Now things are to be brought back under control again.

The Slog and other sites had argued for some weeks that heavy-handed brakes applied to the property boom, followed by a rush of banks to market, suggested that all was far from well. This announcement – broken in today’s FT – effectively confirms that. The interesting thing is that China’s Agricultural Bank (which also rushed to a market rights issue recently) lends mainly to private borrowers….so there may be more shocks to come.

The Slog has also argued for some time that the stop, start, stop, start nature of China’s ‘free command’ economy leaves investors too much in the dark, and those on the ground in the economy with little room for manoeuvre.

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