Chinese banks are probably now stronger than America’s.

Beginning in 1998, the government recapitalized them. Several years later, the government used approximately $60 billion of its massive foreign currency reserves to help finish the job. And banks were able to dump their bad loans onto state entities created for the purpose of holding the waste, while the banks received safe Finance Ministry bonds in exchange. Income from these restructured assets accounted for 60 percent of ICBC's profit in 2006.

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.