March 23, 2007

Corruption in Chinese Banks to Go On for Decades, Auditor Says

March 22 (Bloomberg) -- China's financial watchdog, Auditor- general Li Jinhua, has a mixed message for the investors who've spent $74 billion on shares in his country's banks since 2001.

The good news, says the man nicknamed ``Iron Face'' for his perceived incorruptibility and because he rarely smiles in public, is that his campaign against corruption, embezzlement and waste has helped to improve banking practices in the past seven years.

The bad news: It may be a couple of decades more before the banks' management is acceptable by Western standards.

``It would be naive to think that once these state-owned banks are listed publicly they won't suffer any operational problems,'' says Li, 63, whose position at the head of China's National Audit Office gives him cabinet minister rank. ``It might take a whole generation to get these banks into reasonable shape.''

After three decades of economic growth averaging 10 percent a year, China's boom is still precarious, as the 9.2 percent plunge in mainland Chinese shares on Feb. 27, the beginning of a $3.3 trillion global stock selloff, shows. China's financial institutions hold $161 billion of bad loans, according to the country's central bank. Since 1999, Li and his 80,000 auditors have uncovered $6.4 billion worth of irregularities at state-owned banks.

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