In the 14 years between 1990 and 2004 the Chinese economy grew at an average rate of 10% annually. Growth like this generated lots of capital allowing loans to stay current. There is little to fear, even if the growth rate of China’s gross domestic product falls into the single digits, which it will eventually according to simple laws of math. The banks in China, says Benjamin Wey, president of New York Global Group, are in little danger of mass defaults.
“I would say that the vast majority of Chinese commercial banks’ loan portfolios are quite stable,” Ben Wey reassures.Loans Tied to Real Estate
That is not to say that China is immune to economic realities. Even if it were to happen that China should go through hard times in their real estate market, it would be painful, but not painful enough to ruin the country’s economy, says Wey. This is because a large part of loans from Chinese banks are tied to (collateralized) by real, hard assets, like commercial property.
China’s goal is to stimulate demand at home, while at the same time reducing its dependence on exporting. Exporting now makes up about 40 percent to China’s total economic activity.
Wey points out that the yuan went up in value by 5% last year, against the dollar, which was not quite enough to satisfy US traders.
“Stronger than expected growth in the American economy this year will be necessary to strengthen both currencies,” says Wey.
So what are the prospects for the future? China is now striving to develop more home-grown producers of such consumer items as automobiles, appliances and more, in anticipation of an emerging middle-class with disposable income on hand which will propel their purchasing power. There is little doubt that such companies will be founded in the coming years in greater and greater numbers.
How does all this bode for the US economy? Despite all the strength in the Chinese economy, there is one major asset that the US has in reserve. As Ben Wey puts it, “I am a firm believer that innovation comes out of a free society.” The American democratic system allows for the kind of innovation which grabs and holds unto new markets.
To be competitive with China, though, the US will have to straighten out its own economic situation.
“We cannot afford to run the kind of budget deficits we are running today,” says Wey. “Every year we have a deficit, we are indirectly helping China to become stronger.”