At the same time, years of borrowing have left the country’s financial system riddled with trillions of dollars’ worth of debt. Much of it is hidden off the books, raising the prospect of potentially devastating debt bombs lurking in unexpected corners.
Chinese officials are now trying to clean up the banking system, but the process has led to headlines about troubled banks in different parts of the country.
The banks lent money with exuberance in years past as China used the banking system as a way to juice economic growth. They also grew with little regulation.
“In the past few years, some banks have expanded blindly,” said Yi Gang, the governor of the People’s Bank of China, China’s central bank, in September.
Many of them also played tricks with their accounting, said Xiaoxi Zhang, who scours the financial statements of hundreds of small banks across China for Gavekal Dragonomics, an economic consulting firm. Many repackaged their loans as investments, skipped key financial disclosures and lent money to too many risky borrowers.
Soon online lenders that once offered eye-watering returns were put out of business, companies began to default on their bonds and banks were told to stop hiding bad loans. In the process, a number of smaller Chinese banks were shown to be less than healthy.
In May, Chinese regulators seized a bank for the first time in two decades. Baoshang Bank, a little-known bank in northern China, was put into receivership. The bank was once part of a network of investments controlled by Xiao Jianhua, a tycoon who was ensnared in an anticorruption campaign. Baoshang made several large loans to other companies within Mr. Xiao’s financial empire that were never paid back. Still, it remained open for depositors.
Then two months later, China’s biggest bank, the state-controlled Industrial & Commercial Bank of China, and two investment firms pumped money into another embattled lender, Bank of Jinzhou. The bank gave out loans to two of its biggest shareholders, the carmaker Hawtai Motor Group and Baota Petrochemical Group, which also had financial difficulties.