After spending time combing through the financial reports of China’s biggest publicly traded, state- owned banks, I now understand what Jim Chanos, the famous short- seller, means when he keeps saying they are “built on quicksand.” He’s definitely on to something.
Start with Industrial & Commercial Bank of China Ltd., the world’s most valuable bank, at least on paper, with a $238 billion market capitalization. Much of its capital consists of the remnants of bad loans dating to the 1990s, which ICBC now calls receivables. One such receivable represented about a third of ICBC’s shareholder equity, as of Dec. 31. It was scheduled to start coming due in 2010 but wasn’t repaid, and still sits on ICBC’s books at its original value.