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China banks: Ticking time bomb?

A new report by Fitch warns of a coming crisis.
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Buildings topple from a controlled-explosion set off during their demolition in the Huanggang district of Shenzhen, May 22, 2005.

Unrest across the Middle East. Surging oil prices. Persistenly high U.S. unemployment.

What else could derail the global economy?

How about a banking crisis in China?

Fitch Ratings says there's a 60 percent chance of that happening by mid-2013.

The toxic financial combination in China, according to Fitch: surging property prices (see, in particular, Shanghai), and a record amount of lending over the past two years ($2.7 trillion) fuled in part by the Chinese government's stimulus program Beijing enacted during the global economic crisis.

Fitch sees the risk of “holes in bank balance sheets” should a property bubble burst, Richard Fox, a London-based senior director, told Bloomberg on Mar. 4. “We’re talking about systemic crises here, affecting most of the major banks,” Fox added. “A crisis is something which technically de-capitalizes the banking system.”

This isn't the first time Fitch has warned of trouble ahead in China.

As reported by GlobalPost's David Case, Fitch first pointed to the problem in December:

The situation has become so precarious that Fitch Ratings, a global credit analysis firm, issued a report last month revealing a litany of messy banking practices associated with aggressive Chinese loan making. The report stated that these practices — involving transferring loans off of banks’ books — constitute “the most disconcerting trend Fitch has observed in China’s banking sector in recent years.”

http://www.globalpost.com/dispatches/globalpost-blogs/macro/china-banks-ticking-time-bomb