China Discloses $1.1 Billion Bank Fraud

China?s had a rough go of it lately. First, there was the Ernst & Young report, which China vigorously derided as being fraudulent while distorting the facts. Though Ernst & Young later apologized for the error, Fitch followed close behind with it?s own report, which claimed that China could face $220 billion in losses due to bad loans. This was about $700 less than what Ernst & Young projected, but still about $100 billion more than what China was willing to cop to.

Today?s Washington Post reports that the Chinese government has disclosed $1.1 billion worth of bank fraud at one of its largest state-owned banks this week. This revelation underscores how incredibly risky this market is for foreign investors.

China?s banking system is a precarious one at best. The Chinese government has been working hard to eradicate any hint of taint from its state-owned banks. Reports such as the ones from Ernst & Young and Fitch make such under-rug sweeping difficult. China’s leaders are particularly keen to fix ailing lenders ahead of next year, when foreign banks will be allowed to conduct business inside China in local currency.

“This case that has emerged at the Agricultural Bank of China is just a minor one among the overall problems with China’s state-owned banks,” said Yi Xianrong, a director at the China Academy of Social Sciences’ financial research institute in Beijing. “Lots more such cases are not discovered and will be discovered sooner or later, as the most serious problems involve medium- and long-term loans.”

You can read the entire story at China Discloses $1.1 Billion Bank Fraud.