The Economic Health of BRICS – Part 3/7

January 13, 2012

In China, where do you think most or all of the money from those 30% to 60% down payments mentioned in Part 2 go?  For a first-time property sale, the government owned banks loan the money to private citizens or businesses to buy property owned by the government. Once the loan is complete, the down payment and the amount of the loan flows to the same or another government owned bank and then the buyers make payments with interest to the government owned bank that holds the loan.

When re-sales of these properties take place, the first mortgage on the leased property is paid off and the second loan is either 70% (for a buyer’s first home) or 40% (for a second home).


Thirty percent of property in China is bought with cash.

Due to the high required down payment, the risk to China’s government owned banks is much less than the risk in the US private sector banking system, which really has no risk, since the government often steps in to make up for the losses in the private sector while ending up increasing the national debt.

In China, even when property values drop, the bank, which the government owns, may repossess the property (that the government always owned) and resell it.  This means after a property has dropped 50% of its value in China, the government may lose either 30% or 10% of the value of the loan.  In the US, if a bank cannot re-sell the house at the current value, then it losses all of the value of the loan.

However, when the same property that was repossessed is sold again, the down payment will be between 30% to 60% in addition to the fact that 30% of property sold in China is bought with cash.

In the long run, will the government owned banks in China make a profit or a loss?

Continued on January 14, 2012 in The Economic Health of BRICS – Part 4 or Return to Part 2

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Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.

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The Economic Health of BRICS – Part 2/7

January 12, 2012

China’s banking system has undergone significant changes in the last two decades and is functioning more like western banks than before but remains owned by China’s government.

That is a significant difference. For example, in America, there are no government owned banks but the public sector insures any risk taking the private sector banks take.  This means that private sector banks may lose trillions and the government will step in, as Washington D.C. did in 2008, and go deep into debt to save the banks from drowning and taking America and the West’s economies down with them into a black hole.

The biggest difference between the west and China is the money trail.

In America and the west, most people borrow from private banks to buy private property and when the value of the property drops, as it has in the United States, and the borrowers walk away letting the bank reposes a property that is worth much less than the loan amount, much of the money is gone—when the house sold, the equity went to the previous owner and any mortgage that existed was paid off. The US government made no money on the deal (property tax goes to state governments).

It doesn’t work that way in China because the banks are owned (and controlled) by the central government and so is the land. A better idea of the difference between buying private property in the west and government owned property in China comes from Global Property Guide.com that says, “The slowdown (drop in property values in China) follows market-cooling measures first introduced in April 2010. The campaign intensified in 2011. The down payment for first-time buyers’ mortgages was increased to 30% from 20%, and for second homes rose to 60% from 50%.”

By comparison, in America, down payments may be as low as no money down or 3.5% and as high as 20% depending on the loan and the qualifications of the buyer/s.

Continued on January 13, 2012 in The Economic Health of BRICS – Part 3 or Return to Part 1

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Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.

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The Economic Health of BRICS – Part 1/7

January 11, 2012

In 2001, Jim O’Neill, the chief economist for Goldman Sachs, coined the BRIC acronym to represent the combined economies of Brazil, Russia, India and China. He was also so bold as to predict that by 2032, or sooner, the BRIC would overtake the six largest western economies (which includes America) in terms of economic might.

Then in 2010, South Africa joined the BRIC turning that acronym into the BRICS.

In fact, the International Monetary Fund (IMF) has predicted that China, a member of BRICS, will beat the United States as the world’s largest economy by 2016 with a GDP of $19 trillion compared to $18.8 trillion for the US.

There are about seven billion people on the planet and almost half live in Brazil, Russia, India, China, and South Africa. The US, by comparison [I prefer factual comparisons over opinions], holds less than 5% of the world’s population. However, I thought I’d throw in this comparison as a footnote. The King’s College of London reported that in 2009, “More than 9.8 million people are held in penal institutions throughout the world… About 2.3 million were in the US,” which means 23% of the total global prison population was in America.


About prison slavery in the United States.

Did you pay attention?  A country [the US] with less than 5% of the global population has 23% of the  global prison population.

By comparison, the five BRICS countries [without the freedom American citizens seem to enjoy] has almost half of the world’s population but only 35% of the global prison population.

What does that tell us—that the more freedom and wealth a country has, the more crooks it grows and attracts?

Anyway, the world’s combined GDP, according to The World Bank was more than $63 trillion (US) in 2010. The GDP of the US was $14.6 trillion, while the BRICS’ combined GDP equaled about $11.6 trillion (US).

Recent drops of property values in China, sometimes reaching 50%, caused dire predictions in the Western media that China’s economy would soon crash and take the BRICS down with it causing their economies to suffer as well.

However, it is best to understand China’s economy and banking system to see if this wishful thinking on the part of China’s Western critics is valid.

Continued on January 12, 2012 in The Economic Health of BRICS – Part 2

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Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.

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Playing With Numbers

June 1, 2011

For centuries, China was the world’s largest economy (from tenth to fifteenth century) and if experts at the International Monetary Fund and others are correct, China will soon regain the title as the world’s largest (healthy) economy.

However, it is confusing. If we listen to The Economist in The X Factor, we are told that India’s economic growth may soon outpace China’s.

The Economist says, MORGAN STANLEY thinks it could happen in 2013; the World Bank thinks it might happen next year. Many pundits have speculated about when India’s growth might outpace China’s.

However, the International Monetary Fund’s (IMF) World Economic Outlook says that has already happened since China grew by 10.3% in 2010 and India by 10.4%.

Then from Yahoo Finance we learn the IMF says, “According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016.”

After reading the previous paragraphs, it sounds as if India will grow its economy past China and China will outgrow the United States leaving the US in third place.

In fact, India is far from growing a larger economy than China or the US.

In 2010, India’s economy ranked 10th globally or fourth depending how you stack the numbers.

India’s nominal GDP was placed tenth at $1.53 trillion, while another way of looking at the numbers says India ranked fourth at $4.06 trillion, but its public debt was $758 billion or 55.9% of GDP with $201 billion in exports and $327 billion in imports and a credit rating of $1.164 trillion.

This means India, like the US, is spending more than it earns.

China, on the other hand, had a nominal GDP of $5.88 trillion but a GDP (based on PPP) of $10.08 trillion placing it 2nd globally.  China’s public debt was 17.5% of GDP, which is a long way from India’s 55.9%.  Everything else about China leaves India far behind China’s economy.

India’s exports were more than seven times lower than China’s $1.506 trillion while its imports were almost four times lower than China’s $1.307 trillion and China has a credit rating of $8.156 trillion—much higher than India.


China is likely to resume its role as the world’s largest economy by 2015.

Any way we look at it, how can India beat China unless they are talking about the annual percent of economic growth?

Considering how much smaller India’s economy is, they would have to have a lot more growth to equal China dollar for dollar.  If India’s economy grew by 10.4% and its economy was either $1.53 trillion or $4.06 trillion (depending how one looks at it), that is still a far cry from China’s 10.3% economic growth based on a much larger GDP.

On the other hand, America, the world’s largest economy, looks like a cancer patient with six months to live.

America may have the world’s largest GDP at $14.66 trillion but having $14 trillion in public debt at 93% of GDP just about cancels that out.  Even India is doing better.

Then America’s exports were $1.280 trillion compared to $1.948 trillion for imports telling us more money is pouring out than coming in. How will America pay off its debt if losses outpace earnings?

The Economist seems to want people to think India is beating China but the numbers tell a different story. To beat China, India has to grow a much larger economy and reduce its public debt while erasing an illiteracy and poverty rate that’s embarrassing for a country touted as the world’s largest democracy.

Anyone that studies history knows that a democracy survives if the citizens are literate and understands the issues.

Discover India Falling Short

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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.

To subscribe to “iLook China”, look for the “Subscribe” button at the top of the screen in the menu bar, click on it then follow directions.


Is China Shifting Gears?

May 19, 2011

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

Discover Deng Xiaoping’s 20/20 Vision

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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.

To subscribe to iLook China, look for the “Subscribe” button at the top of the screen in the menu bar, click on it then follow directions.