The deterioration in government finances, the bad loan problem in the state banking system and the losses of state-owned enterprises (SOEs) are well-known characteristics of China's reform period. The decrease in the share of government revenues in GDP is frequently cited as sign of a deterioration in government finances. A corollary is the gradual rise in the budget deficit. While the 1978 budget was still in surplus, new domestic government debt incurred in 1997 was equal to 28.63 per cent of total government revenues, or 3.31 per cent of GDP.On the decline in the share of government revenues in GDP see, for example, Christine P.W. Wong, Christopher Heady and Woo Wing-Thye, Fiscal Management and Economic Reform in the People's Republic of China (Hong Kong: Oxford University Press, 1995). For the debt data see Zhongguo tongji nianjian 1998 (China Statistical Yearbook 1998) (Beijing: Zhongguo tongji chubanshe, 1999), pp. 55, 269 and 291. At the same time, bad loans in the banking system have come to account for perhaps as much as 25–50 per cent of all loans extended by the exclusively state-owned banking system.On the bad loan problem see, for example, John Bonin and Huang Yiping, “Dealing with the bad loans of the Chinese banks,” manuscript, Wesleyan University and Australian National University (March 2000), or Carsten Holz, “China's bad loan problem,” manuscript, Hong Kong University of Science & Technology (April 1999). All financial institutions in China are controlled by the state. All financial institutions except Minsheng Bank and the rural credit co-operatives are also state-owned. China Minsheng Bank is 85% owned by member enterprises of the All-China Federation of Industry and Commerce, a state-controlled federation of privately owned enterprises; the independence of China Minsheng Bank, not least due to the personnel appointments at its top tier, is highly doubtful. Its assets at end-1997 amounted to 0.20% of the total assets of all financial institutions (Zhongguo jinrong nianjian 1998 (Almanac of China's Finance and Banking 1998) (Beijing: Zhongguo jinrong chubanshe, 1999), pp. 508 and 563). The rural credit co-operatives are directly administered by the central bank. While they are formally owned by farmers, their aggregate net worth is negative; i.e. formal ownership comes neither with control rights nor with financial returns. SOE losses have grown continuously over the economic reform period; in the case of industrial SOEs, for which detailed data are available, losses in loss-making enterprises relative to profits in profitable enterprises rose from 7.64 per cent in 1978 to 45.92 per cent in 1997.On the data see Zhongguo tongji nianjian 1998, p. 461. Due to data limitations, industrial SOEs cover only those “with independent accounting system.” A comparison with all industrial state-owned units is possible based on Gross Output Value of Industry (GOVI). In 1978, industrial SOEs with independent accounting system produced 96.44% of GOVI of all industrial state-owned units, in 1997, 95.97%; this share was constant at 96% to 97% in the two decades in between. (Calculated from Gaige kaifang shiqi nian de zhongguo diqu jingji (China's Regional Economy in 17 Years of Reform and Opening) (Beijing: Zhongguo tongji chubanshe, 1996), p. 146; Zhongguo tongji nianjian 1998, pp. 435 and 454; Zhongguo tongji nianjian 1997, p. 413.)