Tags: Mobius | China | banks | govt

Mobius: China Not Headed for US-Style Financial Crisis

By Dan Weil   |   Monday, 24 Jun 2013 11:49 AM

China's banking system faces a major problem with bad loans, just as the U.S. banking system did in 2007 and 2008, but the outcome will be different in the world's second-largest economy, says emerging-markets icon Mark Mobius, executive chairman of Templeton Emerging Markets Group.

The difference is that the Chinese government controls the country's banks, making it easier for them to be bailed out, Mobius said, according to CNBC.

China faced a credit crunch last week that spooked investors, and the Shanghai Composite stock index plunged 5.3 percent Monday to its lowest level since early December.

Editor's Note:
Billionaires Dump Stocks. Prepare for the Unthinkable.

"The perception of China is they are in the same kind of situation as the U.S.," Mobius said at an asset-manager conference in Monaco, CNBC reported. A lot of loans will go bad, and banks have been hiding them in trust companies, he explained.

But, "we have to ask what the consequence is, what will happen as a result. And the scenario will be very different in China, simply because the banks are controlled by the government, so they will not be allowed to go bankrupt."

China also has $3 trillion in foreign currency reserves that it can use to recapitalize its banks, Mobius noted.

Therefore, there won't be a very big correction in China, he told CNBC.

On Sunday, China's central bank said it would adjust monetary policy as necessary, indicating officials will consider loosening policy to ease the cash squeeze.

"You could see this as one very modest sign that perhaps the People's Bank of China doesn't want to scare the markets and market players too much," Louis Kuijs, chief China economist at Royal Bank of Scotland, told Bloomberg.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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