Bloomberg News
August 1, 2006

Western investors ‘are buying into a mess, a system where loans are doled out with little regard for risk and reward, with a regulatory structure that doesn’t look anything like what they’re used to,’ one analyst says.

Managers at Bank of China Ltd., the country’s second-largest lender, spent a decade pulling off the biggest bank heist in Chinese history. The men at a branch in southern China embezzled $485 million before using false identities to flee to the U.S., where they were arrested in 2004, U.S. prosecutors say. The former bankers, Xu Chaofan and Xu Guojun, are coming to trial for fraud and racketeering in federal court in Las Vegas following the arrest of top executives in China last year. Zhang Enzhao, former chief executive officer of No. 4 lender China Construction Bank, was nabbed on suspicion of bribe taking. And Liu Jinbao, former CEO of a Bank of China subsidiary, was handed a suspended death sentence for embezzlement. The corruption in China’s banks hasn’t scared off investors who are enthralled by an economy that grew by 10.9 percent in the first half of 2006. They’ve poured about $37 billion into Bank of China, China Construction Bank and Industrial & Commercial Bank of China, the biggest lender, through direct investments and stock purchases in the past 15 months, according to Bloomberg data.