Some Chinese bankers feel that a domino effect would be triggered if loans were called in: other companies would go under, unemployment would rise, and company suppliers would go out of business. Consumer spending would then drop, and social unrest would rise. For these reasons Chinese banks wait and/or do nothing, while U.S. banks operating in normal market economies would call in loans and/or cause enterprises to file for bankruptcy.

Moreover, Western companies can't keep selling below cost for years and years, but Chinese companies with huge loans do. Banks encourage oversupplies while firms seek diversification, because in China expansion equates with increasing scale and reducing unit costs. In effect, profits and losses are calculated differently.

Large Fortune 500 companies have been flocking to China despite the banking differences. The marriage of cheap labor with modern factories and technology makes outsourcing profitable for their shareholders. This helps fuel further urbanization throughout China. The massive differences in living and cultural standards between rural and urban areas have created a kind of time-warp effect that has boosted China's economic rise due to the cost-of-living differentials.

Thinking about this, I said, "Mr. Yang, although you've lost some money, you live in the provinces. Your money buys more there in terms of food, shelter and luxury goods, so what you lost is not as much as what you would have lost if you were a Beijing resident."

"I guess you could look at it that way," Mr. Yang answered slowly. He sipped his coffee thoughtfully and added, "You're a clever girl. Please tell me how I'm going to explain it to my wife."

The author is an American living and working in Beijing