China's big banks are finding themselves in a squeeze for capital after a huge lending spree encouraged by the government. Within the last year, seven of the biggest Chinese banks tapped the markets for 323.8 billion renminbi ($51.4 billion ) in new funds. But Chinese firms have maintained that their profit growth is strong and their balance sheets are solid, raising red flags among some analysts about the banks’ persistent capital needs. The problem is believed that a small number of major banks occupy a monopoly position, meaning Chinese can only go to them for loans and capital. Who is benefiting from this is the state, and the banks need to keep these capitals high in order to keep the lending up and pay off their large dividends.
As we studied monopolies, we saw that a reason monopolies are formed are because they are needed to cover high fixed costs. In this example, the Chinese banks need to keep their monopoly in order to keep paying off their very high dividends. Also, they are the states main financial backer so keeping the monopoly is necessary to keep their funds up. The talk of breaking up this monopoly into private sectors would do severe damage because of the banks huge lending spree and huge dividends they have to pay. But, monopolies do not do anything for the citizens and their huge capital and possibility of breaking them up is creating financial insecurity. This just shows the complications of having an overpowering force, both positive and negative.
This is a good analysis of the financial banks of China and you point out the pros and cons of their monpolistic banks. One thing you should include are possible solutions to their need for capital. For example, will the banks need to lower interest rates or will the government have to intervene via taxes to generate extra revenue to aid the monoply.
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