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(2 August 2001) Its "assets" are its greatest liabilities. The loans made by the banks¡¦¡X"assets" in bankers terms¡Xare mostly nonperforming, a polite term used by the financial community to describe loans in default. State-owned enterprises (SOEs) cannot, or will not, pay back the banks, so today there is a client crisis. What is the extent of the damage that China has inflicted on its banking system?

Don¡¦t ask the People¡¦s Bank of China, the central bank, if you really want to know. The technocrats at the PBOC, as the institution is known, have been possessive of information, even to the point of hiding the truth from themselves.

At the end of 1999, they said that 25 percent of the loans held by the state commercial banks were nonperforming, but no one took that figure seriously. A year later, the PBOC told the world that these banks have unloaded 1.3 trillion yuan (US$157 billion) of nonperforming loans in 2000 pursuant to a government recapitalization plan.

Yet,...