There is one simple way to reduce a bank’s bad loans: change how they are defined. Beijing has followed this path, encouraging lenders to go on propping up China’s slowing economy. But the banks cannot hide weakening profits from investors so easily.

Bad loan ratios have been growing amid the pandemic. The government has allowed lenders to delay recognition of some non-performing loans. Even then, Chinese banks are expected to rack up Rmb3.4tn ($497bn) of NPLs this year, an almost 50 per cent increase. The country’s biggest banks are therefore in deteriorating financial health.

Earlier this year, Beijing called on financial giants — including Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China — to lend aggressively to businesses. Outstanding domestic loans at financial institutions rose 13 per cent to $24tn in the first half. The pace of loan growth is expected to rise sharply in the second half.