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Bad debt below 1 percent in China soon?

After the credit emission in China during the first half, international investors are concerned that bad debt will pile up after three years. Bankers in China are certainly a lot more optimistic.

More than 50 percent of the bankers surveyed by PricewaterhouseCoopers and China Banking Association expect the ratio of banks’ non-performing-loans to range between 1 percent and 5 percent of the total over the next three years. Indeed, 30 percent expect the ratio to be below 1 percent.

True, NPLs are currently at a record low of 1.8 percent . But given the recent lending frenzy, it is surprising that such a high number of bankers would expect it to drop further rather than inching up. Perhaps they are betting on another clean-up of bad debt so the ratio will get reset to zero?

There are also some seemingly self-contradictory answers that belie their concern of the property market. As much as 63 percent of respondents say they will continue to support mortgage and personal loans but most of them (79 percent), want to be prudent on lending related to property developers, a group that has been kicked around by some heavy handed policies.