China's banking sector has seen a significant decline in legacy nonperforming loans and structural shifts in its clientele base over years. We lowered our estimate of the incidence of gross problematic assets in a prolonged downturn despite pressures from the ongoing global economic downturn. We maintained our Banking Industry Country Risk Assessment on China's banking system in Group 6. The Chinese banking sector remains vulnerable to high corporate leverage, structural weakness in the production-driven growth model, government influence on lending, and the overall still-developing credit culture in China. On Aug. 5, 2009, Standard&Poor's Ratings Services lowered its estimate of the incidence of gross problematic assets in the financial system of the People's Republic of China (A+/Stable/A-1+) to 25%-40%
