China Will Never See a Bank Fail. It will See a System Collapse

Monday, July 11, 2011 19:54
Posted in category The Big Picture

Riding the metro this morning, I was once again reminded by the fact that in China systems fail.. on a regular basis.

I realized this while trying to go up an escalator to get out of the metro, but alas it was “being maintained”.. apparently a very common site around town now after a couple of escalators a couple of thousand miles away malfunctioned.

It reminded me of a conversation that I have had a number of times I China. That when things start to go wrong, systems come down fast. Remember when 17 provinces lost power in 2008… system failure. Remember when 300,000 kids ended up in the hospital for drinking melamine laced milk… system failure.

System failures that required complete rebooting, a few weeks of time, and a few heads to roll… before “confidence” returns.

Which brings me back to the point of the post.

The Chinese believe in “the system”, and at any time that a problem occurs, it is seen as a issue with the system itself vs. what may very well be an isolated incident… which leads people to often act in mass to rumors (remember the recent Japanese radiation scare? or perhaps the ATM line in HK on July 3, 1997?)

In the current environment, where the Chinese banks are already admitting that they have taken on too much debt (and Beijing is trying to play down the size and impact) and the likelihood that China’s banking system be called into question will rise…

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5 Responses to “China Will Never See a Bank Fail. It will See a System Collapse”

  1. Bill Rich says:

    July 11th, 2011 at 8:00 pm

    Furthermore, Chinese government and the CCP would not allow a bank to fail. All kind of administrative efforts will be used to stop people withdrawing money from the bank, and not allowing the banks creditors to call loans from the bank. When too many banks are failing so that these administrative and legislative efforts become useless, the organization that stops the banks from failing will fail instead. Banks never do.

  2. Rich says:

    July 12th, 2011 at 9:27 am

    @Bill Rich (.. and John)

    This is exactly my point. EVERYONE will say that the CCP would not allow A bank to fail, but what I am trying to say is that they will never have to defend a bank… they will have to defend the system… because, should their be a failure (truth or rumor) a run on the system would occur.

    With regard to the second part of your comment… if the organization that stops banks from failing in China fails… that is essentially either the PBOC or CCP… and that would itself lead to a failure.

    Good news is that by the time I was returning home, some of the escalators were being turned back.. so we are seeing one system “return to normal”

  3. Diogenes' Lantern says:

    July 15th, 2011 at 11:02 am

    China today seems to be a grand experiment into whether a Communist dictatorship can successfully compete in free-market capitalism on a global scale. So far, from a macro perspective, it seems to be doing well. I’ve no doubt the leadership gave much study to the West’s development of capitalism and are trying to learn from our mistakes.

    Though in the not-too-distant future, I think China will have become the world’s wealthiest nation with India a close second, simply based on the sheer numerical size of both nations and the growing wealth and size of their middle-classes. This seems almost guaranteed since both have learned that the majority of a nation’s wealth is derived from its own consumer base. A nation cannot live on exports alone. Even in the U.S. exports are only 30% to 40% of our economy.

    This, I think, will be the pudding that holds the truth. Once China’s as yet undefined middle-class becomes as wealthy as the West’s middle-class, the reality of whether a Communist dictatorship can run a successful capitalist nation will be shown. I’m betting that China will find that democratic core Mao once said China needed. It’s a natural progression. I believe any nation venturing into the capitalist free-market results in self-rule. Greed, for lack of a less contemptuous term, is a common human trait. Money, wealth, is an enabler. Mix the two together and you’re going to have a powerful middle-class that want’s more freedom. It’s in our DNA.

  4. | All Roads Lead to China says:

    September 17th, 2012 at 6:57 am

    […] ultimate worst case scenario. Which is at times its most likely – as I describe in my post China Will Never See a Bank Fail. It will See a System Collapse.  The underlying premise at that time being that China’s growth has occurred in such a way […]

  5. Mouse clicks and Magic Wands Won’t Save China | All Roads Lead to China says:

    June 25th, 2013 at 3:16 am

    […] takes me back to a post that I wrote last year, China Will Never See a Bank Fail. It will See a System Collapse, where I alluded to the fact that while China could likely save a bank, perhaps two, the problem is […]