Is China shifting gears to avoid the Japanese Syndrome, which is what happened to Japan in the 1990s and was known as the Lost Decade? American economist Paul Krugman has described Japan’s Lost Decade as a liquidity trap, in which consumers and firms saved too much overall, causing the economy to slow too much.
In addition, on November 13, 2009, The Economist said, in The Dragon still roars, “Some analysts claim that China today looks ominously like Japan in the late 1980s… Banks’ non-performing loans will surely rise in 2010, and unless the government tightens monetary policy it will store up future problems which could harm economic growth.”
However, on April 10, 2011, Lianting Tu reported for CNBC that China is “Taking a cue from the larger economy, which is looking to make the transition from quantity to quality, China’s four biggest banks have decided to slow down growth and focus instead on better profit margins.”
What Lianting means is China’s banks are not loaning as much money, are making better loans and charging higher interest rates, which boosts profits.
She also writes, “Non-Performing Loans are a Non-Issue” in China. She says, “For the four major Chinese banks, the average non-performing loan, or NPL, ratio dropped to around 1.1 percent in 2010 from 2 percent in 2009 and is expected to decline further this year, compared with 20 percent in 1990 and around 5 percent only 3 years ago.”
Compared to the United States, China is in good shape. According to the Federal Reserve Bank of St. Louis, total non-performing loans in the US flew from less than 2% in 2007 to almost 6% in 2010—the opposite of China, which has been reducing non-performing loans.
A Chinese friend said most loans get paid off because in China when a loan is made, entire working families cosign, which may be another benefit of a collective culture instead of one based on individualism. In China, mostly everyone in an extended family has to lose jobs and income to default on a loan.
In fact, in the US, bankruptcy cases filed in federal court for the 12-month period ending September 30, 2010 totaled 1,596,355, up 13.9 percent over the same period in 2009. In 2007, before the 64 trillion dollar global financial crises caused by greed from Goldman Sachs, Wall Street and much of the US banking system, the bankruptcies were about 50% less. Source: Bankruptcy Action.com
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Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.
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