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Is China Sitting on Bad Debt Bomb?

Chinese are in for a trouble and Indians can rejoice as China is sailing in the same boat as India. It is worth mentioning that Chinese banks are writing off bad debts which is as large as 22.1 bn Yuan (US$ 3.65 bn) in the first six months.

It is an alarming situation as last year; the write offs stood at 7.65 bn Yuan. However Chinese do have a backup plan in place as they had catered for the bad loans in earlier periods.

How China is Going to Handle Bad Debt Situation?

It is likely that Chinese bank regulator will ask banks to set aside more funds to take care of defaults and also to write off bad loans.

Moral of the Story

China need to control their bad debts; if they really want to become no 1 in world economic order and we as Indians can learn a lesson from them and can further tighten our banking norms so that unabated loans are not given. Our banks should undertake the risk analysis and then provide the loans and govt should desist from loan waivers as it leads to uncontrollable bad debts and write offs which is not good for Indian financial health. Check out if India can overtake China in next 25 years here.

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