It is only a matter of time now before the US Economy takes a back seat to the Chinese economy.
The "Supply side" economic model promoted by Reagan and Bush actually works. Unfortunately it does not work for America.
The fact is a certain percentage of every dollar spent flows to the supplier, who ultimately becomes wealthy. The supplier is always the manufacturer of the products bought. That manufacturer as we all know is now the Chinese and not the US.
More and more Corporations simply profit from the markup on Chinese made products and as such they have become nothing more than a middle man or broker rather than the supplier even though they make claim to that title.
The Rise of Chinese Banks
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Under China's old risk-weighting system, the banks were able to declare that loans to state-owned companies carried zero risk. That allowed the banks to have huge balance sheets with virtually no capital. No more. As of Sept. 30, the average capital adequacy ratio for all of China's publicly traded banks totaled about 13 percent, well above the government's required standard of 8 percent.
The treatment of nonperforming loans has changed drastically as well. In the old days, such bad loans were simply rolled over, with skipped payments being capitalized into the loans. Then the government decreed that interest payments on a loan had to be received within 90 days for it to avoid being classified as nonperforming. Initially, the amount of nonperforming loans rose, but as of Sept. 30, 2008, nonperforming loans totaled only 2 percent of the loan total for the country's listed banks. That compares with 2.3 percent for FDIC-insured banks in the United States.
The provision system, which is how banks account for loans that may go bad, has changed, too. Before the reforms of the past decade, banks didn't have to create provisions for bad loans, regardless of the quality of their loan portfolios. Now provisions are substantial. As of Sept. 30, provisions for loan losses among the listed banks amounted to an impressive 123 percent of their nonperforming loans.
In 2003, Chinese regulators let foreign investors increase their stakes in Chinese banks from 15 percent to 20 percent. That ruling gave the banks more capital and credibility, paving the way for their initial public offerings beginning in 2005.
It also gave the Chinese institutions access to Western management expertise, though fortunately for the Chinese, they didn't match their Western brethren's excessive risk-taking.
And that's still paying off: China's publicly traded banks registered a 53 percent increase in net income in the third quarter of 2008 from the same period in 2007.
And perhaps most importantly, Chinese banks skipped the subprime party. They will, at most, have to write off 0.1 percent of their assets as a result of owning toxic U.S. securities, estimates Nicholas Lardy, senior fellow at the Peterson Institute for International Economics.
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