The arguments are as follows:
1. The banking system to the risk of the buffer is not mainly relying on capital mechanism, but the government credit.
After the clean-up of NPA and NPL in 1999, state-owned Banks gradually fulfill getting listed. However, this is not fundamentally changing the risk buffer mechanism based on the government credit, because Chinese government still hold most state-owned banks’ equity and their effective control. In addition, as there is no direct correlation between banks' property rights and banks' performance, we should take a rational attitude towards the state-owned' banks listed on the stock. Finally, due to lack of institutionalized liquidation withdrawal mechanism and deposit insurance system, Chinese policy banks’ supervision does not allowed any form of bank failure.
2. China's credit cycle is mainly driven by the government policy, but not commercial banks.
Since the reformation and opening in 1980s, China has experienced three credit cycles (1984－1986，1992－1994，2008－2010)，which are all driven and implemented by government power. During the credit expansions, the volatility of net value of state sector assets is far less than that of fixed asset investment and bank loan, and they are independent to each other. While in contrast with the local government, there exists high correlation between budgeted investment and fixed investment, even bank loan, which is more pilot-strategic. Furthermore, in terms of the credit supply, banks are more likely to meet the credit demand within the system, for the sake of risk aversion. (State sector and state-owned banks are in the same system, so the government-backed borrowers’ default risk can be easier supervised and controlled relatively so that banks have no reason not to priority support them.)
Apart from this, the credit supply also follows government’s macro-control policy. For example, the financial stimulus in 2009 with respect to that banks ‘massive lending and credit releasing
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