Two (probably) unrelated stories that reflect the difficulty of getting facts in China.

The first has do to with the $400 million dollar renovation of the National Museum of China.  I guess I should have probably seen where this is going based my experience visiting the Shenzhen history museum, but Chinese museums seem to have no problem creating an entirely flawless image of the Communist Party.  Foreigners, emperors, and certainly the old Republican government can be corrupt or evil, but the Party can do no wrong.

The National Museum of China is the world’s largest history museum, yet when it comes to the history of the Cultural Revolution, where millions of people were killed and countless historical artifacts destroyed, there is a SINGLE photograph.  The Cultural Revolution was an incredibly destabilizing decade that all middle-aged adults today still remember.  Nearly an entire generation of Chinese never got the opportunity to go to university or grow up in a stable environment because of the constant threat of Red Guards shooting you for being a “counter revolutionary”.  This is a story that needs to be faced head-on so that it can never happen again, but the government refuses.  At the same time, they will continue to criticize Japan for not owing up to its World War 2 legacy in it’s textbooks.  I’ve never seen the Japanese textbooks, but I’ve seen the Chinese ones.  Mao is portrayed as a complete hero, and the millions that died at his hands are whitewashed.  It is scary to know that millions upon millions of Chinese will grow up and never know these facts.  Compare this to Taiwan, which built a huge memorial park and monument to the 30,000 who died during the “White Terror” years of the KMT.  Or in the US, which has a Native American History Museum on Capitol Hill, where you can learn about all sorts of nasty things the colonial Europeans did to the Native American population.  There is something very mature about addressing your own history, and the Communist Party is not at that maturity level yet.

The second story is about the amazing profit numbers coming out of Chinese banks.  Read the Forbes story at the link to get the full rundown, but the basics come down to this: ICBC reported an increase of 28% profits over the past fiscal year, but this is more or less total garbage.  Apparently, ICBC keeps most of the lending to local government investment vehicles off the books, so it has a very distorted perception of which loans are performing well and which are in danger of default.  Furthermore, the collateral used by these local governments is land that is over-appraised by 5x or more.  So  if the bank has to call in all these loans and the local governments have to pull on that collateral, it could be a truly severe shock to the system.

Because of this opacity, it’s impossible to say how many of these loans are good and how many will default. But the Forbes writer makes a compelling argument that if 20% of all loans are non-performing, then ICBC actually lost 178 billion RMB over the past 2 years, destroying half of their equity capital on hand.  Obviously this would mean they are in danger of total collapse.  If the default rate was closer to 35% (a rate calculated by the People’s Bank of China report for loans several years ago), then the bank will very quickly find itself completely out of cash.

ICBC is one of the largest banks in the world, publicly listed, and with more international branches opening every year.  But it is still very opaque in it’s finance with the Chinese government.  Until it comes clean with local government loans, it’s difficult to say how this bank is really doing.