With emerging market equities acting better and now positive year-to-date, one noticeable laggard has been China, whose benchmark Shanghai Composite remains down 2% year thus far in 2014. China’s stock market has been in a bear market since peaking in August 2009 due in part to concerns over mounting bad loans in its banking system. Capital markets would benefit from an end to China’s four and one-half year bear market, as it is the largest emerging-market country and second-largest economy in the world. Unfortunately, China’s bad loan ratio rose significantly in the first quarter, increasing risks for the nation’s banking industry. Positively, the article points out that the ratio of bad loans to total lending at the 10 largest publicly-traded banks in China is still only 0.99% of total loans outstanding and China’s sovereign debt remains fairly low, supporting its capacity to sweep up bad debts in the private sector should a crisis develop.