China’s bad data can be a good thing

Studied ambiguity: People playing checkers outside a Baoshang Bank Co branch in Beijing. One of the reasons non-performing loan ratios are so low is because the really risky stuff is hidden in shadow banking assets, as appears to be the case with Baoshang. — Bloomberg

There’s a good reason why China’s banking regulator just issued a statement insisting its small and mid-size banks were stable: Investors don’t believe the numbers that are telling them the same thing. In this particular case, though, bad data may actually be good policy.

Authorities themselves prompted recent jitters by seizing Inner Mongolia-based Baoshang Bank Co at the end of May, despite the fact that it supposedly carried a lower level of bad loans than China’s banking system as a whole.