Chinese banks are probably now stronger than America’s.

And that's still paying off: China's publicly traded banks registered a 53 percent increase in net income in the third quarter of 2008 from the same period in 2007.

And perhaps most importantly, Chinese banks skipped the subprime party. They will, at most, have to write off 0.1 percent of their assets as a result of owning toxic U.S. securities, estimates Nicholas Lardy, senior fellow at the Peterson Institute for International Economics.

But the global recession puts some of that progress at risk. China's explosive double-digit economic growth in recent years, powered by its potent export machine, made it easy for banks to glitter. The rapid slowdown of China's economy represents the biggest problem. China's economy expanded at an explosive 11.4 percent rate last year. Experts estimate that pace will soon slip to 5 percent to 8 percent. While such a figure would represent nirvana for the United States now, the three- to six-percentage-point decline is similar in magnitude to what the U.S. is going through. Double-digit growth in China sent corporate profits soaring. Pretax profits totaled 11 percent of GDP last year, up from 4 percent in 2001.

"You have to be a pretty bad lending officer to find someone who's not credit-worthy in that scenario," Lardy says. "Now the economy has slowed, and profits will go negative very soon. Then we will learn more about the quality of loans."

As for the financial crisis that began in the West, it hasn't hurt China directly. But the resulting global recession has crimped demand for Chinese exports. And exports constitute a key component of China's economy. In addition, the government has protected banks by capping deposit rates and cutting bank taxes. That allows banks to cover up some deficiencies.

So Chinese banks are vulnerable. Nonperforming loans will surely increase. Still, a crisis is unlikely. The government has many weapons to fight the economy's deceleration—witness the recent announcement of a $585 billion fiscal stimulus plan. And the banks are much better equipped to handle loan losses now than they were years ago.