China vs. USA – A Comparison of Government Finances and the Economy

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In this post lets take a look at some of the differences between China and USA. The chart below shows the comparison of government finances between the two countries.

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Source: Der Speigel

China has the world’s largest foreign currency reserves. Though the chart says it is $1.9T, the more recent figure was $2.4 Trilllion at the end of December 2009.

The public debt as a percentage of GDP for the U.S.  is more than double that of China at about 38%.

China’s total external debt is just $400B. China is the creditor nation while the U.S. is the debtor nation. Currently the gross external debt of the U.S. is a whopping $13.75 Trillion. According to the U.S. Office of the Treasury the majority of this debt is in the form of long-term bonds and notes.

Clearly the U.S. has long ways to go before it can eliminate the public debts to low levels and be become a creditor nation again.

The services sector forms about 80% major part of the U.S. economy whereas in China it is just 40%. Since the majority of the U.S. manufacturing was off-shored to developing countries, this sector accounts for just 19% of the U.S. economy. In China manufacturing accounts for 49% of the economy. A significant portion of the service sector economy in the U.S. was based in the FIRE (Finance, Insurance and Real Estate) industries.Since the credit crisis, the financial and real estate sector have laid off thousands of workers and the industries are still in shaky grounds. For example, it may many years before a meaningful recovery takes place in the real estate industry.

One way for the U.S. to accelerate the economic recovery would be to invest heavily in the manufacturing sector and increase exports.

Related:

China vs. India: Economy and Government Finances

USA vs. UK: Government Finances and Size of Economy

List of Countries for Possible Downgrades

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From “The Numbers” section of the latest edition of Bloomberg BusinessWeek:

country-ratings.JPG

Governments around the world haven been borrowing heavily in the past 10 years so much that the debt level has now more than doubled to $55 Trillion.

CNBC has published a list of The World’s Biggest Debtor Nations based on the total outstanding external debt as a percentage of GDP. Greece ranks ahead of the U.S. at number 16.

Top 25 U.S. Bank Stocks To Consider

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The Bank Director magazine has published the results of the 2009 Bank Performance Scorecard which ranks the top 150 banks in the U.S.

In an  article titled “Home Run Hitters: Results of the 2009 Bank Performance Scorecard” the magazine noted:

“In what’s been one of the toughest years in banking, institutions that played it fiscally conservative ended up batting a thousand on our annual performance rankings.

Glancing at the performance rankings of the nation’s largest 150 banks this year, it’s not hard to spot trouble. Nearly half of the banks lost money over a 12-month period ended June 30, 2009, a cruel reminder that many financial institutions are still paying dearly for the shaky underwriting conducted during the credit bubble earlier this decade.

Yet a look at the top banks tells a different story. Despite the upheaval of bank balance sheets across America, there are many financial institutions still going strong, especially ones that adhere to a basic formula for successful banking: lend money to low-risk borrowers, keep a lid on expenses, and dominate local market share.

Once again, plain vanilla banking won out over the growth-at-any-cost mentality, according to our annual Bank Performance Scorecard. Based on measurement criteria and analysis complied by Sandler O’Neill & Partners LP, a New York-based investment banking firm that specializes in the financial services industry, the Scorecard usually includes repeat performers that generate high ranks in boom times and bust.”

The following criteria were used to rank the banks:

  • Banks must have assets of $3B and higher
  • Profitability
  • Capital Adequacy
  • Asset Quality

The data from the last two quarters of 2008 and the first two quarters of last year were analyzed for this review.

Top 25 U.S. Bank Stocks from Bank Director’s 2009 Bank Performance Scorecard:

[TABLE=398]

First Financial(FFIN) of Texas ranked the No.1 in the Scorecard this year. The bank operates 50 locations in west and north Texas. First Financial bankers know their customers well and can detect problems with loans in the early stages. The bank was ranked high consistently in the rankings especially in profitability measures. Currently FFIN pays a 2.66% dividend.

Bank of Ozarks (OZRK) based in Arkansas, jumped from 12th rank last year to second rank this year. Ozarks has 72 branches in Arkansas, metropolitan Dallas, and the Texarkana metropolitan area. Bank of Ozarks got $75M from the TARP in 2008 but repaid it in the last quarter of 2009. The current yield of OZRK is 1.91%.

Last year’s No.1 bank in the Scorecard, Montana-based Glacier Bancorp (GBCI) came in at third spot this year. Glacier experienced rise in nonperforming assets which reached 3.92% in 2nd quarter 2009. The higher NPAs was due to the deterioration in its construction and development portfolio in Boise,ID. However Glacier raised $78M in an equity offering in 4Q, 2008 during the credit crisis and is well capitalized to weather the storm.

Westamerica Bancorp(WABC) of San Rafael, California and Republic Bancorp(RBCAA) of Louisville, Kentucky took the 4th and 5th spots this year.

You can download the complete 2009 Bank Performance Scorecard results here.

When will the Debt Rejection Syndrome End in the U.S.?

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The current Fed Funds Rate is 0.25%. It been at this rate for many months now and the Fed plans to keep the rate at this level for an extended period of time. However despite this low rate bank lending has not increased. Both consumers and businesses are not borrowing due many reasons such as uncertainty about the future, lack of demand for products and services, lack of investment opportunities, etc.

Reuters reported the following last month:

“Despite a more stable financial system, banks are still not lending and the quality of loans on their books continues to get worse as the U.S. housing market remains in the doldrums, a top official at the Federal Reserve said on Wednesday.

“Access to credit also remains difficult, especially for households and small businesses that depend significantly on banks for financing,” said Jon Greenlee, Associate Director for Bank Supervision and Regulation at the Fed.

“Loan quality continues to deteriorate across a number of asset classes, and … has declined further as weakness in housing markets affects performance of residential mortgages and construction loans,” Greenlee said in prepared remarks to a Congressional Oversight Panel field hearing in Atlanta.” (emphasis added)

Consumers have cut down on spending in the past few months due to the recession and high unemployment. Just this month the Federal Reserve reported:

“Consumer credit decreased at an annual rate of 4-3/4 percent in the fourth quarter of 2009. Revolving credit decreased at an annual rate of 13 percent, and nonrevolving credit was unchanged on net. In December, consumer credit decreased at an annual rate of 3/4 percent.”

This is the 11th straight month that consumer credit has declined. Since the U.S. economy is still a consumption-driven economy as opposed to export-driven economy like that of Germany or Japan, the economic recovery will take a long time. Businesses are still in the process of repairing their broken balance-sheets. Hence they will not be able to stimulate the economy and replace the spendthrift millions of U.S. consumers.

The phenomenon of debt rejection can take some time to subside. According to the following chart it took 30 years for the US interest rates to recover to their 1920s level.

Click to Enlarge

US-Debt-Rejection-Syndrome

Source:
The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005 by Richard C. Koo, Chief Economist, Nomura Research Institute
Tokyo, March 2009

Strongest Banks in Asia-Pacific and The Middle East

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From a report last October by The Asian Banker, the following are the strongest banks in the Asia-Pacific and the Arab Middle East. These rankings were based on the aggregate score that was calculated using many financial performance indicators.

Asia Pacific’s Strongest Banks

        AP500                                                    Aggregate
     Strength         Commercial Bank           Country         Strength
     Rank 2009                                                  Score 2009
         1          HDFC Bank                    India             3.99
         2          Punjab National Bank         India             3.91
         3          Public Bank                  Malaysia          3.84
         4          Bank Central Asia            Indonesia         3.83
         4          Bank of Nanjing              China             3.83
         6          ANZ Panin Bank               Indonesia         3.78
         7          China CITIC Bank             China             3.76
         8          ANZ National Bank            New Zealand       3.70
         8          Union Bank of India          India             3.70
         10         Westpac Banking Corporation  Australia         3.68

The Arab Middle East’s Strongest Banks 2009

     Strength    Commercial Bank               Country             Score
       Rank
        1    Commercial Bank of Qatar           Qatar               4.05
        2    Qatar National Bank                Qatar               4.04
        3    First Gulf Bank              United Arab Emirates      4.01
        4    Ahli Bank                          Qatar               3.79
        5    Bank Muscat                        Oman                3.76
        6    National Bank of Abu Dhabi   United Arab Emirates      3.73
        6    Saudi British Bank              Saudi Arabia           3.73
        8    Banque Saudi Fransi             Saudi Arabia           3.61
        9    International Bank of Qatar        Qatar               3.60
       10    Union National Bank          United Arab Emirates      3.59