On the surface, China's banking system appears to be in good shape. Leading listed banks reported increases in third-quarter profit, and bank lending has surged. Beneath headline figures on growth, however, are issues within banks' capital positions. The China Banking Regulatory Commission guides lenders, putting them in a difficult position as the year comes to an end. The watchdog could decide to allow banks to go on another lending spree, which would help the economy as well as bank profit, or it could rein in banks to protect their balance sheets.

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