There has always been a sense that Chinese banks don’t quite exist on the same plane of reality as the rest of us. Even their stock market listings – as capitalist and market-driven an act as one could wish for – suggested smoke and mirrors. Yes, these figures were huge, but who really governs these banks? The answer, if any of us really needed it, came with the explosion of new lending in January, all US$237 billion of it. Beijing had instructed its lenders to take one for the team, and provide the extra funds required to boost the economy, regardless of the higher risk. Now China Construction Bank (CCB) is to sell US$4.4 billion in bonds to help cover its outlay. This is in addition to an already announced US$11.7 billion bond sale to boost the bank’s capital adequacy ratios. But what will CCB do if these borrowers default on their loans? Given the precarious situation of certain sectors – and Chinese banks’ poor track record in risk management – it wouldn’t be surprising. And surely there are only so many bond issues that the market is willing to swallow. In all probability, China would do what it did the last time banks became overexposed and transfer the debts to asset management corporations (AMCs). In fact, the head of Cinda, China’s largest AMC, advoctes Western nations do exactly the same thing: Take bad debts off the banks’ books and give them to the AMCs to resolve. It sounds great, but it’s not. While China’s AMCs did sell off some of the banks’ legacy debts, “resolve” might as well be code for “bury.” The state picked up the tab and neither lenders, borrowers or bad debt resolvers were held accountable for their actions. Smoke and mirrors all over again.