Under the old system, state banks lent to businesses under government orders without concerning themselves with prospects for being repaid.
Even when the economic reforms were introduced to encourage financial and industrial efficiency, the banks continued to blindly lend to state-owned enterprises that proved either unable or unwilling to repay their loans.
Even though they are now encouraged to behave like banks around the world in assessing loan risks, the big four are suffering from the crippling legacy of their past profligate handouts of money.
But their financial wellbeing is vital, given that they issue 70% of all loans and hold 80% of all deposits in China.
People's Bank of China Governor Dai Xianglong announced at the beginning of this month that the government planned to thin out the NPLs with an annual 2 to 3% decrease in the 10th Five-Year-Plan Period (2001-2005) so as to ward off possible financial risks.
Currently, the NPLs owned by the Big Four -- ICBC, the Bank of China, China Construction Bank and the Agricultural Bank of China -- stand at 1.8 trillion yuan (US$217.6 billion), or 26.6% of their total loans in local and foreign currencies, he said.
Many foreign observers, however, believe the actual size of NPLs is understated because the way the Chinese categorize bad loans is relatively lenient compared to international accounting standards.
The international accounting firm Ernst & Young, for one, insists that close to half of all loans made by Chinese banks may never be repaid.
