The banks concerned are the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China and the Construction Bank of China. This was because it seemed to fly in the face of a decision made at an earlier session of that body that the State deficit should be greatly cut during the period 1996-2000. They say that the country is already too reliant on domestic debts. Liu He of the State Information Center has suggested that instead of more T-bonds a bigger corporate bond issue should be tried. The objection to this is that an expanded corporate bond issue would suppress the performance of the stock market.
Corporate bonds offer higher returns than either bank savings or T-bonds.
The BIS dictates that capital reserves equivalent to at least 8 per cent of risk-weighted assets are set aside by banks. Chinese banks are currently unable to meet this requirement. Some foreign analysts have misunderstood the purpose of this T- bond issue and claimed that the figures do not add up. They calculate that as much as 30 per cent of the country' 6.9 trillion yuan in bank loans is in default. Of this more than two-thirds may be bad debt.